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20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied
AnnelizeOosthuizen
Dr Annelize Oosthuizen, Subject Head of Taxation in the School of Accountancy, University of the Free State.

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

Prof Jonathan Jansen bids farewell to Kovsies
2016-08-31

 

Dear Kovsie staff and students

This is my final message to you all.

I wish to use this opportunity for some brief reflections, share a word of gratitude, and convey a sense of the future for our beloved university.

Since the announcement of my departure, I have had more than a dozen breakfasts with mainly students, but also staff, to offer an opportunity for the final sharing of thoughts and, of course, goodbyes. The most common questions asked at those breakfast sessions were the following, with my responses. I repeat them here, since these might also be of interest or concern to you.

What are your proudest achievements?
Two things. The increase in the academic standard for the UFS, both in terms of admission standards and pass rates, but also in relation to the requirements for appointment and promotion especially of professors. This is important because in a globally competitive world, a university stands or falls by the quality of its degrees. And for this you need the best students and the best professors.

What would you do differently, given another chance?
Nothing. I believe that leadership is about doing the best you can with the cards you are dealt in the circumstances in which you are placed. There is no point in second-guessing past decisions. I have always been ambitious as a leader, knowing that most of my goals would be met, and that some would not. That is normal in large and complex organisations, and so, I do not sit around pondering regrets, only remembering with gratitude the things we could achieve together.

What did you learn?
A lot. I learnt that our students have tremendous capacity for greatness both in their academic pursuits but also in their ability to live, and learn, and love together. I have learnt never to underestimate the capacity of our youth to excel in whatever they do. Sometimes I felt I was more ambitious for our students and staff, than they were for themselves. But I have constantly been surprised by the capacity of young students to rise above bitterness and division, and to make great our campus, country, and continent.

I learnt, again, that the overwhelming majority of our staff and students are good people, respectful of each other, and determined to work together to heal our broken past and build a more just society. And I learnt that it is much more fulfilling to build up than to break down, to embrace than to exclude, and to love than to hate.

Were you frustrated with the pace of transformation?
Sometimes, yes. But fortunately I studied educational organisations all my life, mainly schools and universities. Universities are called institutions for a reason, and on century-old sites like the historic Bloemfontein Campus of the University of the Free State, there are core beliefs, values, and practices deeply ingrained in the culture of the place.

Anyone, therefore, who believes that transformation is easy, has obviously never tried to change an old university. It is difficult. You will get blowback. You will get bad press. You will, sadly, lose the support of some people. Some believe the university is changing too fast while others will tell you it is not changing fast enough. As you press for change, you find the university going two steps forward and one step back; in these circumstances, the solemn duty of the leader is simply to ensure that the overall momentum is always forward.

For such a time as this –
a commemorative journey:
2009-2016 (PDF book)

Description: Prof Jansen commemorative journey2 Tags: Prof Jansen commemorative journey

I therefore budget for disappointment even as I relish the many changes we have experienced together over the past seven years. If you want to obtain an objective sense of the scale of the changes at the UFS, ask those students and staff who were here in 2009, not those who came recently. They will tell you that we have a very different university, even though we all acknowledge that there is still some distance to travel. Our remarkable story of change is told in the recent Transformation Audit of the UFS, chaired by Prof Barney Pityana; that Audit Report will be released after it is read and studied by the University Council at its November meeting.

At an individual level, I learnt that most campus citizens change quickly and others more slowly, and that one has a duty to constantly push for change, but also to be patient about change. And I learnt that the ideal change retains the best of our past even as we embrace a more just and inclusive future in which all campus citizens feel that the university truly belongs to each and every one of them.

Are you optimistic about the future of our university?

Yes. The UFS is a very well-managed university thanks to the exceptional talent in the management of our finances, human resources and information technology environments. By the end of 2016, we will have record enrolments, from undergraduates to doctoral students, which is good for our future income. We run a tight ship with regard to the university’s finances, and we have greatly improved the academic standard of our qualifications; in this regard, I am very proud of my senior management team, and the talented middle management personnel, and those who make things work at the coalface of our operations.

I am very concerned, however, about future funding of the 26 public universities and the extremely vulnerable situation of at least 10 higher-education institutions. The economy is not growing and the costs of running a modern university are escalating. The delays in government commission reports on tuition fees do not help, and there seems no urgency ‘higher up’ to make the tough decisions.

We have to ensure free education for the poorest students — that is the position of your senior management – but we also need to guarantee the financial sustainability of our universities. The task of the UFS leadership, in this period of uncertainty, is to manage those two expectations as best we can. But this cannot happen without your assistance, and I do ask that you provide the new Rector and his or her team with the same understanding and support which I have enjoyed from you.

In conclusion
I am grateful.

To the many hundreds of students who have passed through my office and our home, and who sat in my many lectures and engaged me in your residences – thank you for enriching my sense of life and leadership. I am grateful that Grace and I could support and mentor many of you over the years and see you graduate. I am a better leader because of you.

To the staff of the three campuses – there is no university Rector, I can assure you, who enjoyed more love and support than what you offered me since the day I arrived here. Students come and go, but you have been my foundation year after year, and I thank you for that.

To parents, friends, and followers off-campus, in South Africa and abroad – thank you for hundreds of letters, emails, phone calls, prayers and ‘packages of support’ (from biltong to books). In the most difficult times, you rallied from everywhere with a word of support, often on social media. Know this: your words kept me calm in the storm.

Thank you, everyone.

Goodbye.

Prof Jonathan Jansen
Vice-Chancellor and Rector
University of the Free State

Description: Prof Jansen saying goodbey Tags: Prof Jansen saying goodbey

Prof Jonathan Jansen steps down as UFS Vice-Chancellor and Rector (16 May 2016)

 

 


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