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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.
nGAP lecturers welcomed by the UFS academic community
2016-06-30
University of the Free State’s newly-appointed nGAP
lecturers. From the left, Neo Mathinya,
Phumudzo Tharaga, and Kelebogile Boleu.
The University of the Free State (UFS) was allocated six positions as part of the Department of Higher Education and Training (DHET) New Generation of Academics Programme (nGAP). Four candidates have filled positions in the Faculty of Health Sciences, Faculty of the Humanities and the Faculty of Natural and Agricultural Sciences – with two positions still vacant.
According to Minister of Higher Education and Training, Dr Blade Nzimande, nGAP is part of the Staffing South Africa's Universities Framework, which focuses on the expansion of the size and compilation of academic staff at South African universities, especially with regard to transformation. The focus of the programme is the appointment of black and coloured candidates as well as women.
The Department of Soil, Crop, and Climate Sciences in the Faculty of Natural and Agricultural Sciences welcomed two nGAP lecturers, Phumudzo Tharaga and Neo Mathinya. The Faculty was allocated four positions. Two positions are filled, while two positions in the Department of Animal and Wildlife Sciences are almost ready to be filled with exceptional candidates.
Agrometeorologist with his feet on the ground
Phumudzo Tharaga holds an MSc from the UFS, and is currently pursuing a PhD. Tharaga’s research focuses on quantifying the water use efficiency of sweet cherry orchards under different climate conditions in the Eastern Free State. Tharaga will offer his students a wealth of practical experience, which he began accumulating while working at ABSA as an agro-meteorologist, before moving on to become a senior scientist at the South African Weather Service. In 2015, Tharaga became a research technologist at the Council for Scientific and Industrial Research (CSIR) and then returned to the UFS as an nGAP candidate at the beginning of 2016.
Beynon Abrahams, nGap lecturer
at the Faculty of Heath Sciences
Department of Basic medicine
Motivated scholar turned academic
Neo Mathinya, who hails from Taung in the North West, has made the UFS her home. She received both her undergraduate and honours degrees from the university. Apart from joining the department as a lecturer under the nGAP initiative, she is currently studying for her MSc in Soil Physics. She will continue with this research when she comes to her PhD. Mathinya’s research focuses on soil salinity - the process of increasing salt content - which affects the ability of plants to take up water, a process, known as osmotic stress. She will investigate the effects of irrigation water salinity on the grain yield and quality of malt barley.
Researcher with a passion for crime prevention
Kelebogile Boleu joined the Department of Criminology in the Faculty of Humanities, with a fresh take on diversion and crime prevention. Boleu holds a BA Criminology (Hons) and is now pursuing her Master’s degree. She worked for NICRO a non-profit organisation specialising in social crime prevention and offender reintegration, with programmes that prevent young and first-time offenders from re-offending, thus reducing crime. Boleu said that her practical experience makes her lectures to third-year criminology students exciting. Boleu’s research focuses on analysing the value of pre-sentencing reports in assisting adjudicators to make well-balanced judgments in cases.
Research with a winning plan for fight against breast cancer
Beynon Abrahams joined the Department of Basic Medical Sciences in the Faculty of Health Sciences. Abrahams holds a BSc, BSc (Hons), and MSc in Medical Biosciences from the University of the Western Cape. Abrahams’ Master’s research focused on breast cancer, research on which he is building in his PhD. This doctoral research involves the exploration of P-glycoprotein, a protein expressed on cancer cell and responsible for multi-drug resistance in cancer treatment. The aim of this research is to develop a therapeutic drug treatment strategy that will improve breast cancer patient survival outcomes. Abrahams’s greater vision is to look at conventional cancer therapeutic regimens, to find ways in which they can be improved.
The nGAP initiative offers these young lecturers an opportunity for growth and development as academics, while providing them with opportunities they would have not have been exposed to otherwise.