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20 August 2025
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Story Dr Annelize Oosthuizen
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Photo Supplied
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.
Academic and security arrangements on the Bloemfontein and South Campuses for the coming week
2016-02-28
All academic and administrative services on the Bloemfontein and South Campuses of the University of the Free State (UFS) will resume on Monday 29 February 2016.
The following academic and security arrangements have been put in place:
1. Academic arrangements:
It is important to remember that losing an academic week has major implications for all students, particularly for first-year students, and for purposes of academic planning. The university will therefore resume its normal work on Monday 29 February 2016. Losing any additional time will severely disadvantage students, especially those who desperately need the time to catch up with lectures ahead of the coming tests and examinations. Many more students will struggle to complete the academic year if any further time is lost.
In order to ensure that the academic work of the university is not undermined, the UFS will extend this academic term by one week. This will allow the completion of the work scheduled for last week. Given the impact that disruptions had on the emotions and concentration of many of our students, academics are requested to manage the setting and re-setting of all tests and assignments scheduled for last week with sensitivity, and to be supportive of students as they re-start their academic work. No student should be disadvantaged in terms of tests or assignments as a result of last week’s closure. We know you would do this anyway, but this is a reminder to all staff of what we expect to be a common approach and understanding on the part of lecturers.
We rely on the leadership of the deans in the seven faculties to support staff and students in dealing with the lost time in the most appropriate manner and in supporting all efforts to refocus energies on the academic project.
As the senior leadership and management of the university, we will continue to do everything in our power to make sure that the academic programme continues uninterrupted.
2. Security arrangements:
The Bloemfontein Campus is secure and we have more than doubled the security arrangements, with the interdict firmly in place.
The university management condemns in the strongest possible terms the violence that took place at Xerox Shimla Park on the night of Monday 22 February 2016. It also condemns the disruptions of the university that followed Monday’s event, which resulted in the suspension of academic and administrative activities on the Bloemfontein Campus. In line with the terms of the interdict - and now that we are at full capacity to secure this very large and spread-out campus - the university will act swiftly and firmly if any protests or disruption recur.
The following security arrangements are in place:
2.1 Staff and students must have their staff and student cards with them when entering the campus. Passengers in motor vehicles will have to present their cards to security personnel before access could be granted. Security personnel will check this physically by verifying that each person has a valid staff or student card.
2.2 Buses will not be allowed to enter the campus and passengers will have to be dropped off outside the gates - passengers will enter through the turnstiles with their valid access cards. Anyone without a valid access card will have to go to the Visitors Centre and present positive proof of ID (SA ID, passport or driver’s licence).
2.3 Pedestrians will have to swipe their cards at the turnstiles at the gates. Those without cards will have to enter through the Visitors Centre by presenting positive proof of ID (SA ID, passport or driver’s licence).
2.4 Visitors must report to the Visitors Centre (at Gate 5 in DF Malherbe Drive) and present positive proof of ID (SA ID, passport or driver’s licence).
2.5 Due to anticipated delays, it is advised that people allow some additional time when planning their routes to campus and to also make use of the less busy gates, such as Gate 4 (Furstenburg Road) and Gate 2 (Roosmaryn Residence).
2.6 It is advised that walkways be used, especially at night, and that pedestrians should keep to areas that are well lit.
Security helpline: +27(0)51 401 2911 | +27(0)51 401 2634.