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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

New South African literature festival offers something for everyone

2016-03-23

The University of the Free State (UFS) in partnership with the Vrystaat Arts Festival is proud to present the first literature festival in central South Africa from 11-16 July in Bloemfontein. Afrikaans books and writers will feature prominently, in addition to other indigenous languages such as Sotho and Zulu. Several authors will be celebrating literature in English.

Vice-Chancellor and Rector of the University of the Free State Professor Jonathan Jansen says: ‘The aim of the festival, part of the bigger Vrystaat Arts Festival, is to strengthen a culture of reading, not just in the Free State but nationally. The festival will market books as well as embrace new developments in the field of writing. I am incredibly excited about this inaugural event, which the university will support in the long-term.’

The theme of this year’s literature festival is ‘Our Africa’ and promises to provide all booklovers and readers tantalizing food for thought. Some of the authors attending the festival include, amongst others, the Hertzog-prize winner Adam Small, celebrating his 80th birthday as well as the release of his latest drama. Another legendary writer, dramaturge and actor, John Kani, will be speaking at the festival about his most recent theatre productions. The ever popular Marita van der Vyver will be visiting the festival from France, and the highly acclaimed writer Zakes Mda, will be flying in from the United States to deliver the inaugural Sol Plaatje Lecture. Mda, also a visual artist, will have some of his works on display.

Other international guests include Chika Unigwe, originally from Nigeria, who rose to fame in Belgium, and was described by South African writer Zukiswa Wanner as one of the five most renowned writers from Africa. Also attending will be Iranian writer Kader Abdolah, whose novels have been translated into more than 21 languages. Abdolah, a political refugee who escaped from Iran to the Netherlands in the 1980s, went on to establish himself as one of the most prominent Dutch novelists. Wilfried N’Sondé, originally from the Congo, who now lives in France, will also be a festival guest.

Theo Kemp, Coordinator of the Literature Festival says: ‘It is critical for us that robust debates on current affairs takes place as part of the festival. Festival participants will be able to engage with a range of authors on topical and sometimes sensitive issues. We welcome this debate – it is rare to have a platform where we can argue passionately yet respectfully about the future of our country in an international context.’

Critical topics covered include themes such as the state of Africa’s economies (with analyst and writer Victor Kgomoeswana); the relevance of the Anglo-Boer War in contemporary society (with Albert Blake and Johan Kruger); philosopher Achille Mbembe talking with Kevin Bloom and Richard Poplak about the changing face of Africa; and the political analysts Susan Booysen and John Matisonn examining the South African landscape in a post-municipal election environment.

Theuns Eloff, previous Rector of the University of Potchefstroom, whose new book What now, South Africa is launched this year, will partake in discussions around current affairs. So to Melanie Verwoerd and Sonwabiso Ngcowa aim to explore the phenomenon of the so-called ‘born frees’ in their book 21 at 21: The Coming of Age of A Nation.

Climate change and its impact on the Free State’s environment is another critical topic covered by Bob and Mary Schole with their book launch of Climate Change: Briefings from Southern Africa.

Festival goers can also look forward to a poetry café, where music and poetry will be mixed; informal visits with writers around food and story telling; as well as word and music productions where popular travel writers such as Johan Bakkes, Dana Snyman, Erns Grundling and Pienkes du Plessis will be present.

Writers will also be involved in a range of panel discussions – including on the ethics of writing biographies (Lindie Koorts and Mark Gevisser); alternative narratives of South Africa in the eighties (Ivan Vladislavic and Johann Roussouw); and discussions with writers such as Hans du Plessis, Bernard Odendaal, Hanlie Retief, Rudie van Rensburg and Irma Joubert.

Workshops will also feature in the programme with writers such as Francois Smith and Henning Pieterse, associated with the Department of Afrikaans and Dutch at the UFS, offering short courses on creative writing; while Johann Roussouw from the Department of Philosophy at the UFS will present a series of talks on the books of Karel Schoeman.

The final festival programme will be launched on 28 April 2016.

The Vrystaat Literature Festival was initiated by the University of the Free State in partnership with the Vrystaat Arts Festival. Project sponsors include Media24, ATKV, Vlaamse Letterenfonds, Institut Francais, Nederlandse Letterfonds, Van Rensburg Pataloe and the Flemish Embassy.

For further enquiries contact:
Theo Kemp
theo.kemp@volksblad.com
+27(0)83 462 9613
www.vrystaatartsfestival.co.za

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