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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

Chemistry Department expands its international footprint
2015-10-14

Prof André Roodt

Prof André Roodt from the Department of Chemistry at the University of the Free State has returned from a research visit at the St Petersburg State University in Russia. The research he conducted at the St Petersburg State University is part of a bilateral collaboration agreement between the University of the Free State and St Petersburg State University.

As part of his visit to Russia (from 17 to 28 September 2015), Prof Roodt presented a seminar at St Petersburg State University, and a lecture at the conference titled: International conference on Organometallic and Coordination Chemistry: Achievements and Challenges.

One of the local Russian newspapers quoted Prof Roodt as “world-renowned expert in the study of chemical kinetics and mechanisms of chemical reactions”. His presentation: Are detailed reaction mechanisms really necessary in (applied) organometallic and coordination chemistry' attracted great interest from the St Petersburg chemists.

The bilateral agreement came to life a year ago when the St Petersburg State University chemists won a grant in a competition to create an international research group, the International Laboratory of Organometallic Chemistry. The Laboratory is headed by Prof Vadim Kukushkin of the St Petersburg State University.

In addition to the employees of St Petersburg University, the research group consists of researchers from Portugal, Finland, South Africa, and Azerbaijan. Together, these groups of scientists are working on the problem of non-reactive metal activation molecules. The main theme of the research laboratory is in the catalysis and activation of metal inert molecules which then undergo significant change, and become meaningful to people chemicals, such as drugs.

As part of this initiative, a bilateral collaboration agreement exists between the St Petersburg State University and the UFS (Russian Science Foundation grant 14-43-00017). Students from our university have visited and conducted research at the St Petersburg State University while some of their students visit and research reaction kinetics at the UFS.

Prof Roodt hosted Valeria Burianova, a student from the St Petersburg University. During her visit at the UFS, she learned about response kinetics. A UFS PhD student, Carla Pretorius, joined the group in Russia where she conducted research on the intermetallic rhodium-rhodium interactions for the formation of nano-wires and -plates, with applications in the micro-electronics industry, and a  potential for harvesting sun energy.

The UFS Department of Chemistry extended its international footprint further with three of its students, Mampotsu Tsosane, Petrus Mokolokolo, and Tom Kama, returning from Switzerland after a six-week research visit in the group of Prof Roger Alberto from the University of Zürich. In return, Prof Roodt hosted a Swiss PhD student, Angelo Frei from Zürich, and taught him more about reaction mechanisms.

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