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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

'Structures of Dominion and Democracy' by David Goldblatt at the Johannes Stegmann Art Gallery
2015-08-03

Photograph by David Goldblatt, On August 16 2012 South African Police shot striking mineworkers of the Lonmin platinum mines, killing 34 and wounding 78 within a radius of 350 metres of this koppie, where the men used to meet. Seventeen of the men, seeking shelter among boulders from police fire, were shot with seemingly lethal intent, some with their hands up in surrender, none were given medical assistance for their wounds. Beyond is the Lonmin smelter, which stood idle during the strike. Marikana, North-West Province, 11 May 2014.

The University of the Free State, in partnership with the Goodman Gallery, presents the exhibition, 'Structures of Dominion and Democracy', by renowned South African photographer David Goldblatt.  

This exhibition, which runs from 13 July to 7 August 2015 on the Bloemfontein Campus, is dedicated to the series, “Structures”, one of the major bodies of works by Goldblatt.  For over three decades, Goldblatt has travelled South Africa, photographing sites and structures weighted with historical narrative: monuments, private, religious and secular, which reveal something about the people who built them.  These sites allow us a glimpse into the everyday. Each place is a repository, a landscape containing an epic story that has involved whole communities: the experience sometimes told through the memorialising of remarkable individuals.

The exhibition, Structures of Dominion and Democracy, traverses two distinct eras in South Africa history. As Goldblatt explains: "Over the years, I have photographed South African structures, which I found eloquent, of the dominion which Whites gradually came to exert over all of South Africa and its peoples.  That time of domination began in 1660 when Jan van Riebeeck ordered a cordon to be erected of blockhouses and barriers that would exclude the indigenous population from access to the first European settlement in South Africa and its herds, lands, water, and grazing.  The time of domination ended on the 2nd of February 1990, when, on behalf of the government and the Whites of South Africa, President FW de Klerk effectively abdicated from power.  Beginning in 1999 and continuing to the present, I have photographed some structures that are eloquent of our still nascent democracy.  In the belief that, in what we build we express much about what we value, I have looked at South African structures as declarations of our value systems, our ethos.”

Johannes Stegmann Art Gallery, UFS Sasol Library
University of the Free State
206 Nelson Mandela Ave
Bloemfontein

Gallery hours:  
Monday to Friday 08:30 – 16:30

Entrance: Free
Enquiries: 051 401 2706, dejesusav@ufs.ac.za

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