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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

Professor Antjie Krog to deliver public lecture at UFS Bloemfontein Campus
2015-06-19

Professor Antjie Krog – illustrious author, poet, and academic – will deliver a public lecture at the University of the Free State’s (UFS) Bloemfontein Campus. The topic of her discussion will be ‘They Couldn’t Achieve their Goal with Me: Narrating Rape during the South African War’.

Prof Krog’s lecture will be the third instalment of the Vice-Chancellor’s Lecture Series on Trauma, Memory and Representations of the Past. The lecture series is hosted by Prof Pumla Gobodo-Madikizela, Senior Research Professor in Trauma, Forgiveness, and Reconciliation Studies at the UFS, as part of a five-year research project funded by the Andrew W. Mellon Foundation.

Details of the event:

Date: Tuesday 23 June 2015
Time: 12:00
Venue: Albert Wessels Auditorium, UFS Bloemfontein Campus
Members of the public are welcome to attend
RSVP to Jo-Anne Naidoo: NaidooJA@ufs.ac.za

Acts of rape during South African War

To set the context of her lecture, Prof Krog explains that, about two months before the South African War officially ended on 31 May 1902, affidavits were taken from women about transgressions experienced at the hands of British soldiers. These acts included plunder, killing of stock, abduction, sexual assault, and rape. Her lecture is the first scholarly focus in terms of narrative and agency on the affidavits of 24 incidents of sexual assaults and rape since the 25-year embargo on these documents was lifted in 1982. The shelving of these affidavits is indicative of how even transcultural multiple processes failed to create an honest discourse in post-colonial South Africa about sexual violence.

Paving the way to healing historical wounds

The series focuses on the portrayal of trauma and memory in multiple ways – such as the narrative arts represented by Prof Krog. These forms of expression may ultimately pave the way to healing historical wounds.

“This topic is very timely, given a recent NRF grant we’ve been awarded for research on transgenerational trauma related to the South African war,” Prof Gobodo-Madikizela says in anticipation of the lecture.

Previous instalments of Vice-Chancellor’s Lecture Series

The first instalment of the Vice-Chancellor’s Lecture Series on Trauma, Memory and Representations of the Past was delivered by former Constitutional Court Judge, Albie Sachs, in which he discussed ‘Sites of memory, sites of conscience’. Internationally acclaimed composer and sound artist, Philip Miller, delivered the second lecture, ‘Disrupting the Silence: The Past and Transnational Memory’.


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