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20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied
AnnelizeOosthuizen
Dr Annelize Oosthuizen, Subject Head of Taxation in the School of Accountancy, University of the Free State.

Opinion article by Dr Annelize Oosthuizen, Subject Head of Taxation in the School of Accountancy, University of the Free State 

 


 

With the two-pot retirement system having been effective from 1 September 2024, it is important to demystify certain aspects to prevent an unpleasant surprise when you retire. Although there are other complex rules, this article was simplified and does not deal with exceptions. It also does not deal with members of a provident fund who were 55 years of age or older on 1 March 2021. Furthermore, reference to retirement funds is to a pension fund, provident fund or a retirement annuity fund (a discussion on preservation funds is therefore excluded).

 

Three, not two pots

Firstly, there are effectively three pots and not two.

  • The first pot is referred to as the vested component. You will only have this component if you were a member of a retirement fund prior to 1 September 2024. This component consists of the member’s interest (balance) in the retirement fund on 31 August 2024 (the day before the implementation of the two-pot system) after being reduced with the amount of the seed capital that was transferred to the savings pot (see below).  This seed capital amount was calculated as the lesser of 10% of the value of the member’s interest in the fund on 31 August 2024 or R30 000. No further contributions will be allocated to this component from 1 September 2024. Upon retirement, one-third of the funds in this component can be taken in the form of a lump sum. The balance will be transferred to the retirement component below and will be paid out in the form of monthly annuities. 
  • The second pot is the savings component. The opening balance of the savings component is the seed capital that was transferred from the vested component above. Thereafter, from 1 September 2024, one third of your monthly contributions to the retirement fund are allocated to this component.
  • The third pot is the retirement component. From 1 September 2024, two-thirds of your monthly contributions to the retirement fund are allocated to this component. The funds in this component can only be accessed upon retirement (i.e. after reaching your retirement age, which is stipulated in the fund rules). Furthermore, upon retirement, the money in this pot is only paid out in the form of monthly annuities (i.e. monthly pensions) and no lump sum can be taken from this pot unless its total value is R165 000 or less.

Withdrawals are taxed unfavourably

Secondly, withdrawing from the savings component before retirement has adverse tax implications.

  • From 1 September 2024 onwards, one is allowed to make an annual withdrawal (minimum of R2 000) from the savings component even if you have not yet reached your retirement age and although you are still employed. It is, however, important to remember that such withdrawals are taxed very unfavourably since they are taxed by using the normal progressive tax tables that apply to your other income such as salary. If you wait for your retirement and only withdraw from this savings component upon retirement, the first R550 000 will be tax-free and withdrawals above R550 000 will be taxed at rates much lower than the current progressive tax rates applicable to other income.
  • Upon retirement, only the money in the savings component is allowed to be taken as a lump sum.  If you therefore withdraw all the money from this pot annually prior to retirement, you will not have any funds available to access as a lump sum on retirement and will only have access to the monthly annuities payable from your retirement component.

Less funds available

Lastly, for those members who have a vested component (i.e. who became members of the retirement fund before 1 September 2024), the old rules still apply to the funds in that component. Therefore, upon retirement, you will still be able to take one third of the value of your vested component as a lump sum. The balance will be transferred to the retirement pot and will be paid out in the form of monthly annuities.

To summarise, even though it might appear lucrative to withdraw from your savings component annually, it is advised that you refrain from doing it unless you really need the funds to fulfill basic needs. Withdrawing prior to retirement has the following adverse consequences:

  • Money withdrawn from the savings component is taxed at higher rates than what would have applied had you reached your retirement age and retired. You will therefore not make use of the R550 000 tax-free option.
  • You will have less funds available to pay out as a lump sum on retirement. As a simple calculation, had you not withdrawn R30 000 in a single year, conservatively calculated at a rate of 5%, this R30 000 would have grown to R79 599 (R139 829 if a rate of 8% is used) calculated over 20 years that can be withdrawn tax-free when utilising the R550 000 tax-free portion on retirement.

News Archive

Kovsies proud of a gold PRISM Award for safety campaign
2015-05-05

Stefan Lotter, Leonie Bolleurs and Lacea Loader. All three are from the Departement of Communication and Brand Management at the UFS.
Photo: Hannes Pieterse

The University of the Free State, takes pride in the gold PRISM Award (from the Public Relations Institute of Southern Africa) for the B Safe Take Action safety campaign that has been rolled out on the campus since 2013 by the Department of Communication and Brand Management.

The campaign earned the Von H Brand Provocateur gold award in the internal communication category.

“The UFS is the only tertiary institution to receive a gold award. The award is a great honour for the department, considering the cream of South African public relations took part in the competition, and the standard was naturally very high. It was also a feather in the cap for us that the uniqueness of the campaign received national recognition from our peers in this manner, said Ms Lacea Loader, Director: Communication and Brand Management at the UFS.

The university is responsible for about 32 000 students and 4 000 members of staff on its three campuses: the Bloemfontein and South Campuses in Bloemfontein and the Qwaqwa Campus in the Eastern Free State. It is of cardinal importance for the university that its students, staff, and assets are safe.

Apart from safety measures that have been implemented by the UFS Protection Services, the B Safe Take Action campaign has also been rolled out on the three campuses of the UFS. The campaign supports the safety strategy of the university. It is aimed at developing a culture of safety awareness in students and staff alike. The purpose of the campaign is for staff and students to take ownership of their own safety. In addition, it creates awareness of the safety measures that are in place at the UFS.

The campaign has been rolled out on various communication platforms. These include placards, pamphlets, lamp-post advertisements, an advertisement board, emails, and messages on student communication portals such as Blackboard, the UFS web and intranet, social media, information boards in the campus parking areas and on the pedestrian walkways as well as messages on refuse bins around the campus. “The fact that a variety of communication platforms has been deployed, the striking design and character of the messages, and the number of target audiences that have been reached further contributed to the success of the campaign,” said Ms Loader,

The campaign also received a merit award from the International Association for Business Communication (IABC). The award will be presented on 15 June 2015 in San Francisco, USA.

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