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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

School of Medicine – heartbeat of the UFS
2015-06-24

Photo: Charl Devenish

During the past year, the School of Medicine at the University of the Free State celebrated several successes in the field of research and cooperation agreements. These successes allow the school to continue delivering world-class teaching to some of the country’s top students.

Earlier this year, a research team from the Department of Medical Microbiology under the guidance of Prof Felicity Burt, received a grant of R500 000 to conduct research on Congo fever (CCHF). Prof Burt is an internationally-recognised expert on Congo fever. The funding that has been awarded will be used to profile immune responses against CCHF viral proteins, and investigate mechanisms and strategies to enhance these immune responses. This study may contribute to the development of a vaccine against this deadly virus.

Prof Stephen Brown from the Department of Paediatrics and Child Health’s expertise and commitment to paediatric cardiology gained him the title of Bloemfonteiner of the Year. Under the leadership of Prof Brown, the department has performed many breakthrough operations and procedures. The most recent of these, was the first hybrid procedure in the country which was performed in November 2014. The department also has an ultramodern hybrid heart catheterisation suite.
 
Prof William Rae from the Department of Medical Physics focuses on medically-applied radiation. Together with his department, they are looking at quantitative radiation dosages. The research is particularly crucial for the successful treatment of cancers. Through this research, it is possible to ensure that patients receive the appropriate radiation dosages in order to obtain the desired effect without the patient being affected negatively.

Dr Nathanial Mofolo, Head of the Department of Family Medicine in the School of Medicine, is since 2006 involved at various levels of hospital management regarding quality assurance, patient safety, clinical and infection management, as well as administration. He is currently curator of internal medical students for four of the UFS’s teaching hospitals. His department is currently focusing on the National Health Plan, HIV and tuberculosis, teaching and learning, as well as service delivery in family medicine.
 
Prof Francis Smit manages the team that, to their knowledge, decellularised the first primate heart. The method has been applied successfully on rat and pig hearts by researchers in America. Recently the team also successfully cultivated beating heart cells ? those of a rat ? in their laboratories. The research is in line with what researchers in Europe and America are working on. In the long run, the research project aims to attempt ‘building’ a heart that could be used for the purposes of organ donation.

The UFS is also home to the only metabolic research unit in the country. The unit was established to focus research on obesity, type II diabetes, metabolic bone diseases and all related diseases. This includes diseases such as diabetes, cholesterol, cancer, psoriasis, lymphoedema, fatigue, high blood pressure, gout, arthritis, fibrosis, skin disorders, PMT, migraine, insomnia, gall and kidney stones and related infections, and obstructive sleep apnea. The unit is a joint initiative between the UFS and Christo Strydom Nutrition. Mr Christo Strydom, a nutritionist and world renowned in the treatment of lymphoedema, invested R5 million in the establishment of this unit at the UFS.  Christo Strydom is also the founder and owner of Christo Strydom Nutrition.

The School of Medicine at the University of the Free State is the only unit on the continent offering in-depth modules in clinical simulation. The Clinical Simulation Unit on the Bloemfontein Campus of the UFS, headed by Dr Mathys Labuschagne, is regarded as the flagship unit of the school and boasts high-technology equipment where students can practice their clinical skills before applying those skills in the real world.
 

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