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Demystifying the two-pot retirement system

20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied

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

UFS adopts advanced institutional approach to disability, launches CUADS

2015-07-14

Lize Botha, Louzanne Coetzee and her guide-dog Oakley, and David Nkwenkwezi.

Photo: Eye Poetry Photograpy

The approach to support for students with disabilities at South African universities has remained largely one-dimensional, focusing on the support and accommodation of individual students. Implementing the Universal Access (UA) and Universal Design (UD) approach has aligned the University of the Free State (UFS) with international standards. Such an approach addresses challenges arising as a result of the interaction between functional limitations and the social, attitudinal and physical environment of students with disabilities. The Unit for Students with Disabilities (USD) has evolved into the Center for Universal Access and Disability Support (CUADS) in support of the social model of disability.

Hetsie Veitch, Head of CUADS and her team, have dedicated the past four years to the center’s physical revamping and systematic reconstruction to be officially launched in an Open Day event on the Bloemfontein Campus.

Details of the event:
Date: Friday 24 July 2015
Time:10:00-16:00
Venue: CUADS and Sasol Library foyer
Members of the public are welcome to attend.

Exploring the dimensions of UA and UD

UA and UD facilitate holistic support for students with visual, mobility, hearing, learning, and other impairments. With the former providing a paradigm shift in disability management and support, the latter warrants the formation of a universally accessible environment.

According to Veitch, the focus moves away from the person with the disability, someone who ‘needs to be helped’, to the environment in which that person needs to function.

Since the center was founded in 2001, structural and systematic developments have occurred in order to create a welcoming and accessible learning environment that grants students opportunities to be successful in their academic endeavours.

UA endorses the UFS Mission Statement of human togetherness, advancing social justice by creating multiple opportunities for students to access the university, and promoting innovation, distinctiveness, and leadership in both academic and human pursuits.The UFS is committed to be a welcoming, accessible, and inclusive learning institution, an environment where optimal learning for a diverse student community thrives.

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