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20 August 2025
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Story Dr Annelize Oosthuizen
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Photo Supplied
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.
New computer centre
2007-05-15
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Attending the sod turning ceremony of the University of the Free State's (UFS) new computer centre were, from the left: Mr Abraham Makhalanyane (Director of Sikeyi Construction), Prof. Frederick Fourie (Rector and Vice-Chancellor of the UFS) and Mr Johann Ströhfeldt (Director of Ströhfeldt Construction Group). The centre, which will host about 815 computers, will be erected in a joint venture between the two construction companies.
Photo: Leonie Bolleurs
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UFS gets new computer centre
The first sod of a new computer centre which will host about 815 computers was turned on the Main Campus of the University of the Free State (UFS) in Bloemfontein today.
The computer centre, which will be situated next to the UFS Sasol Library, will have various state-of-the-art computer laboratories. This is the first new building to be built on the Main Campus since the student centre, Thakaneng Bridge, and will be erected at a total project cost of R19 million.
“The computer centre is an important addition to our strategy to promote e-learning and is a sign of the new era of blended learning which students are now practicing,” said Prof. Frederick Fourie, Rector and Vice-Chancellor of the UFS, during the sod-turning ceremony.
According to Prof. Fourie the building will address students’ need for available computers. “All our students do not have a computer to assist them with their studies. The centre will empower them to complete their studies successfully and will provide them with the opportunity to conduct research in an academic environment,” said Prof. Fourie.
“Various laboratories for among others group work, as well as laboratories where students can work in a quiet environment on individual assignments will be established. Rooms for classes where a computer is a prerequisite to students as well as rooms for examinations, tests and practical sessions will be provided,” said Prof. Fourie.
The computers will not only comprise of traditional programmes, but rooms with programmes for open learning will also be established. Subject specific software will be installed in certain rooms to enable students to obtain a good knowledge of the subject fields.
The computer centre, which will be open seven days a week, will also be at the disposal of UFS staff.
“I am looking forward to this development on the Main Campus. It will be a thrill to see more than 800 students studying in the computer laboratories,” said Prof. Fourie.
The building will be erected in a joint venture between Ströhfeldt Construction Group and Sikeyi Construction, a black empowerment company. Mr Abraham Makhalanyane, Director of Sikeyi Construction, thanked the UFS for the opportunity to be involved with a project of this magnitude. “A project like this is a great responsibility and I am looking forward to work with a team of experts,” he said. Mr Johann Ströhfeldt, Director of Ströhfeldt Construction Group, said: “We have been working with the UFS on construction projects for more than 25 years. I believe that this project will also contribute to the pride and glory of the UFS.”
The expected completion date of the computer centre is May 2008.
Media release
Issued by: Lacea Loader
Assistant Director: Media Liaison
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl@ufs.ac.za
14 May 2007
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