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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

21 Icons: 21 Years of Freedom Collection at the University of the Free State
2015-09-02

   

In Prayer and Protest - Sophia Williams De Bruyn

The Johannes Stegmann Art Gallery, in partnership with 21 Icons, is hosting the 21 Years of Freedom Collection, an exhibition specially curated for the University of the Free State.
21 Icons celebrates a heroic past and inspires a hopeful future. The project was launched in 2013 as an initiative that uses film, photography and written narrative to celebrate the lives of extraordinary South Africans. It highlights people who have been catalysts in shaping society, on a local or global level and across a variety of contexts: in a social, political, environmental or artistic sense.

It is the brainchild of internationally renowned photographer and filmmaker Adrian Steirn, whose primary source of inspiration was the life of Nelson Mandela. In one way or another, all of the men and women featured in the project have extended his legacy, making a magnificent impact on South Africa and beyond.

  

Beautiful Sacrifice - Albie Sachs

21 Years of Freedom features 21 icons from the first and second seasons of the project. It includes the last official photographic portrait of Nelson Mandela and many of his friends and fellow struggle heroes. Behind each portrait lies a carefully planned concept that captures the essence of each icon, capturing their spirit and distinct legacy.

Among the other extraordinary South Africans featured in this collection, are struggle icons Ahmed Kathrada and Advocate George Bizos, Archbishop Desmond Tutu, human rights and environmental activist Kumi Naidoo, celebrated storyteller Gcina Mhlophe, Nobel laureate Nadine Gordimer, activist and musician Yvonne Chaka Chaka, gender activist Sophia Williams De Bruyn and artist William Kentridge.

    

The Full Report - Zubeida Jaffer

The 21 Icons was created as a movement for positive change. By sharing the stories of iconic South African men and women, the intention is to inspire new generations to follow in their footsteps.  With the country celebrating 21 years of democracy but still grabbling with injustices, the message that everyone can do something to make a difference, is portrayed in these powerful and inspiring stories.

Writer-in-residence and well-respected journalist, Zubeida Jaffer, who features among the collection of 21 striking photographs, opened the exhibition saying, “I feel like I’m surrounded by a circle of energy from which I have been fortunate to draw strength …It’s a choice that we make…whether to draw energy from those who are positive and forward looking or to surround ourselves with people who are fearful.  There is a lot to be fearful about in our country. We have lived through very fearful and difficult times.  But to cope with these times, those people and many others have kept their focus on hope.  They have kept their focus on what is possible…and what we would like South Africa to be in the future.”

For more information on 21 Icons: 21 Years of Freedom Collection contact the Johannes Stegmann Art Gallery at +27 (0)51 401 2706 or dejesusav@ufs.ac.za

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