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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

The UFS warmly welcomes 2016 first-years

2016-01-06

The University of the Free State (UFS) is ready to offer a warm welcome to all first-year and senior students for the 2016 academic year. In striving for excellence, we intend to provide an environment that is conducive to students enjoying their learning experience. To ensure that you, as new Kovsies, are able to navigate all three campuses easily, and receive the assistance you need, we have compiled a list for your information and convenience below.

Gateway Pocket Guide 2016

To assist you in finding your way on campus and to answer frequently asked questions, please read this document and refer to the accompanying map:
Information Sheet and Registration Map 2016.

Important dates

Bloemfontein Campus

18 - 22 January 2016: First-year student registration (Yearbooks) (view the full academic advice programme here)
25 - 29 January 2016: Senior resident student registration (Yearbooks) (view the full academic advice programme here)
20 January 2016: First-year athletics
23 January 2016: First-year sports tournament
30 January 2016: Rag procession
1 February 2016: Lectures start

South Campus

Registration and Orientation dates for the South Campus
1 February 2016: Lectures start

Qwaqwa Campus
Pre- and post-registration information for the Qwaqwa Campus
19-22 January 2016: Registration - first-year undergraduate students
22-25 January 2016: Gateway Orientation - first-year undergraduate students (Gateway Pocket Guide 2016)
25-29 January 2016: Registration - senior residence students (undergraduate and honours)
25 January 2016: Registration - International students
26 January 2016: Official welcoming - first-year students
18 January – 5 February 2016: Registration - master’s and doctoral students
1-5 February 2016: Module and Qualification changes (all faculties)

1 February 2016: Lectures start

Stepping to success at UFS Qwaqwa Campus
Programme for other Gateway activities

Contact numbers

Bloemfontein Campus

Switchboard: +27(0)51 401 9111	Admissions: +27(0)51 401 9864/ 3693/ 3696	Financial Aid: +27(0)51 401 7175/ 9359/ 2103
Tuition Fees: Accounts/amounts payable: Undergraduate: +27(0)51 401 2806 / 3003 Postgraduate, BML and e-Learn students: +27(0)51 401 9537	Bursaries: +27(0)51 401 9160/ 3603	Loans: +27(0)51 401 9359/ 3202
Female Residences: +27(0)51 401 3455	Male Residences: +27(0)51 401 3562	Postgraduate Bursaries: +27(0)51 401 2045

South Campus

Switchboard: +27(0)51 401 9111	Tuition Fees: +27(0)51 401 2806/ 3003
Female Residences: +27(0)51 401 3455	Male Residences: +27(0)51 401 3562
Admissions: University Preparation Programme (UPP): +27 (0)51 505 1201/ 1362 Advanced Certificate in Teaching (ACT): +27 (0)51 505 1378 National Professional Diploma in Education (NPDE): +27 (0)51 505 1221 Advanced Certificate in Education (ACE): +27 (0)51 505 1342 Varsity College: +27 (0)51 505 1378 Short Learning Programmes: +27 (0)51 505 1436

Qwaqwa Campus

Switchboard: +27 (0)58 718 5000	Admissions: +27 (0)58 718 5011/ 5012/ 5022
Tuition Fees: +27 (0)58 718 5024/ 5119	Financial Aid: +27 (0) 58 718 5062/ 5061/ 5038
Accommodation: +27 (0) 58 718 5030/ 5016

Payments and registration

Registration fees are payable five days before the registration date.

Once you have registered, you will be able to access your official timetable. Use our campus maps to easily find your way around.

For detailed payment information, visit our Tuition Fees website.

Student card

Students on the Bloemfontein Campus have to obtain a student card from the Card Division on the Thakeneng Bridge. Your student card is your official university identification, and allows you access to:

campus
residence
events
library
computer labs.

With your student card, you are also able to pay for:

meals
books
electronic items.

General

Once you are registered, important announcements will be emailed to your student email account (studentnumber@ufs4life.ac.za). Information regarding assessments and electronic study material related to the modules you are registered for at the university will be posted on Blackboard - an online learning management system. For Blackboard-related queries, dial +27 (0)51 401 9452.

Safety and security is a priority here at the UFS. Protection services are available 24 hours a day on +27(0)51 401 / 2911. In addition, the Health and Wellness Centre is here to cater for your health needs.

Please like the University of the Free State and the Kovsie2B Facebook pages to stay up-to-date about what is happening at the UFS.

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