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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

Regional Conference on Trafficking in Human Beings

2007-06-29

Trafficking in Human Beings:
National and International Perspectives

Date: 17th August 2007
Address: CR Swart Auditorium, University of the Free State, Bloemfontein, South Africa.

Every year thousands of children and adults become victims of trafficking and abuse in South Africa and throughout the southern African region. Victims are trafficked for a myriad of reasons: sexual exploitation, including prostitution and pornography; illegal labour, including child conscription; domestic servitude; illegal adoptions; body parts/organs; and forced marriages.

The Unit for Children’s Rights, Department of Criminal and Medical Law, University of the Free State (UFS), together with the Centre for Continuing Legal Education at UFS, will host a Regional Conference on Trafficking in Human Beings. The conference will bring together key role-players from the South African government as well as crucial international non-governmental organizations (NGOs) in the region.

Trafficking in human beings, especially women and children, is a serious violation of the human rights of the victims, as well as an extremely profitable source of income to organized crime, and needs the attention and intervention of both governmental and non-governmental institutions in South Africa.

Speakers will include representatives from the United National Office on Drugs and Crime (UNODC), the International Organization for Migration (IOM), the National Prosecuting Authority (NPA), the South African Law Reform Commission, the Unit for Children’s Rights-UFS, and NGOs Molo Songololo and Terre Des Homes, that work with child trafficking victims in South Africa and around the world.

The media are invited to report on the conference, and interview speakers and presenters Attached find programme. For more info contact the following persons.

1. Beatri Kruger - 051 401 2108 / email: krugerh.rd@mail.ufs.ac.za
2. Susan Kreston - 051 401 9562 / email: krestons.rd@mail.ufs.ac.za
3. Elizabeth Snyman – 051 401 2268 / email: snymane.rd@mail.ufs.ac.za

Programme

Trafficking in human beings:
National & international perspectives

Presented by The Unit for Children’s Rights, Department Of Criminal & Medical Law , Faculty of Law, in Conjunction with The Centre for Continuing Legal Education, University of the Free State.

Funded through the Generosity of the United States Department of State

17 AUGUST, 2007 – CR SWART AUDITORIAM

8:00-8:30 Registration & Tea
8:30-8:45 Opening & Welcome
Prof. JJ Henning, Faculty of Law
8:45-9:40 Overview & Global Perspective
Prof. Susan Kreston - Unit for Children’s Rights, Faculty of Law-UFS

9:40-10:00 TEA

10:00-10:45 International Perspectives & the Role of Organized Crime in Trafficking
Wiesje Zikkenheiner, Associate Expert
United Nations Office on Drugs & Crime, Pretoria
10:45-11:45 Identifying and Assisting Victims of Trafficking
Marija Nikolovska, Project Officer
International Organization for Migration, Pretoria

11:45-12:30 LUNCH

12:30-1:15 Prosecuting Trafficking Without Trafficking Laws
Adv. Nolwandle Qaba, Sexual Offences & Community Affairs Unit
National Prosecuting Authority, Pretoria
1:15-2:15 Recommendations for New Legislation in South Africa
Lowesa Stuurman - South African Law Reform Commission, Pretoria

2:15-2:30 TEA

2:30-2:50 The Role of Terre Des Homes in Fighting Trafficking in Children
Judith Mthombeni– Terre Des Homes, Pretoria
2:50-3:50 Trafficking in Children in South Africa – A Front Line Perspective
Patrick Solomon - Molo Songololo, Cape Town
3:50-4:00 Closing Remarks
Adv. Beatri Kruger
Department of Criminal & Medical Law - UFS

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