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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.
Education bursaries awarded to 180 UFS students
2007-08-24
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At the awarding ceremony were, from the left: Prof. Steve Niemann (Head: School of Education at the UFS), Kaizer Mosupeng (first-year student in Education), Prof. Frederick Fourie (Rector and Vice-Chancellor of the UFS), Mr Enver Surty (Deputy Minister of Education), Danielle Nel (third-year Education student) and Mr Tebogo Lioma (Deputy Director General of the Free State Department of Education).
Photo: Leonie Bolleurs
Education bursaries awarded to 180 UFS students
The Department of Education awarded 180 Fundza Lushaka Bursaries to students in education at the University of the Free State (UFS).
The bursaries were handed to the students today by the Deputy Minister of Education, Mr Enver Surty during a function held on the Main Campus in Bloemfontein.
The Fundza Lushaka Bursary Programme is a multi-year programme that promotes teaching in public schools. The bursaries, valued at R40 000 each, enable students to complete a full teaching qualification in an area of national priority. The recipients are required to teach at a school or provincial education department for the same number of years that they receive the bursary.
“The programme was implemented in recognition and acknowledgement of the educators in South Africa. All of you sitting here today should regard yourselves as nation builders as you will be helping to build communities and a caring society. Therefore it is imperative that you must be committed to teaching and have an interest in working with young people when taking up this bursary,” said Mr Surty.
Mr Surty said the skills required for teachers of today are much different than in the past. “You would be teaching in an environment with mixed cultures and language and must be able to adapt and be willing to contribute to a multi-cultural, multi-lingual and diverse South African society,” said Mr Surty.
According to Mr Surty, the national priority areas include among others African languages, English, Mathematics, Natural Sciences and Information and Computer Application Technology. Although the bursary programme is non-racial, special attention was given to the awarding of the bursaries to women. At the UFS 58% of the bursars are female students, while 58% are black and 42% white students.
Prof. Frederick Fourie, Rector and Vice-Chancellor of the UFS, said the institution was worried about the small number of students who showed interest in the field of education a while ago. “Since the implementation of the bursary programme we have seen a turn-around in the registration of students in education, which is an extremely positive sign,” said Prof. Fourie.
Media Release
Issued by: Lacea Loader
Assistant Director: Media Liaison
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl.stg@ufs.ac.za
24 August 2007
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