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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

Heidedal-based foundation and UFS host inaugural music concert
2015-12-04

ROC children rock in marimba music
Photo: Valentino Ndaba

Reach Our Community (ROC) Foundation in conjunction with the University of the Free State’s Odeion School of Music (OSM) held its first-ever music concert last month. Children who form part of the foundation’s Afterschool Care programme showed their impressive music skills to their parents and guardians in attendance.

ROC provides support to orphaned and vulnerable children from early childhood through to adolescence in the Heidedal community in Bloemfontein. The foundation strives to address the challenges resulting from factors such as poverty, unemployment, HIV/Aids, single parenting, lack of guardianship, and physical and sexual abuse. In the Afterschool Care programme, the children engage in educational, cultural, and recreational activities.

Going the extra mile

Since 2008, the UFS has successfully partnered with ROC through service learning and community engagement in which students from across all seven faculties participate. Two Music Education and Practice students from the OSM took it upon themselves to continue after their curriculum requirements were met.

Amy Viljoen- now a final-year BMus student, together with fellow student, Petre du Plessis, and their lecturer and programme coordinator, Gerda Pretorius, established the music class project in Heidedal in 2014. The students embarked on weekly trips to ROC, and would spend an hour working on the recorders and marimbas with children from ROC.

This year, Viljoen and Kara-Lynn Crankshaw, a final-year BA Music student, spent eleven months teaching the children music practice and theory, culminating in a concert that both the community and students can be proud of.

“I wanted to do something that was not only meant for educational purposes, but to give back to the community,” said Viljoen.

After having to gather extra chairs because of the influx of community members at the ROC hall, the founder, Patrick Kaars, said he had not expected such a turn-out. “It exceeded my expectations, and it was a dream come true. It meant so much to the children to be exposed to music, and to explore their own capabilities and talents.”

More children will learn how to play other instruments. Currently, the instruments used for the children’s training were purchased second-hand in order to cut costs. New music education specialists, who will join the programme in 2016, will also work with Pretorius to gather additional equipment, and compile learning material.

Kaars is also thrilled about the potential expansion to the music group, now that the concert has become an annual event. The OSM is also in the process of establishing a Centre for Music Development at ROC.

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