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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

UFS doctors fight childhood cancer
2016-09-02

Description: Childhood cancer  Tags: Childhood cancer

Prof David Stones and Dr Jan du Plessis of the
University of Free State’s paediatric oncology ward
are helping little lives, one patient at a time.
Photo: Nonsindiso Qwabe

Of 23 paediatric oncology specialists nationally, Prof David Stones and Dr Jan du Plessis of the University of Free State are the only ones in the province.

Committed to giving holistic care to their patients, the two doctors specialise in all types of childhood cancers, the most common being leukaemia, brain tumour, and nephroblastoma.

They describe the childhood malignancy as a lethal disease, unpredictability being its harshest trait. “With cancer, you can just never know. It precipitates and multiplies, and leads to the failure of other organs. You can just always hope, and keep trying,” said Du Plessis.

The paediatric oncology unit of the Universitas Academic Hospital, their unit, is the liveliest floor in the entire building. It is also the third busiest in South Africa, serving a demographic that spans the Free State and Northern Cape, as well as parts of North West, Eastern Cape and Lesotho.

Each year, the unit receives more than 100 new childhood cancer patients. In 2015, the unit had 113 newly diagnosed patients, an increase from 93 in 2014.

Lack of knowledge poses a serious challenge
According to the two experts, the lack of insight and awareness of the disease remain a big challenge to fighting it. “It is frustrating. Parents and family members don’t know anything about it. Nurses and doctors aren’t always clinically trained to pick up the early warning signs. By the time a diagnosis is made, life and death is on a 50% margin,” Stones said.

Poverty, a lack of resources, overcrowding and a range of health issues are other factors that have a profound effect on the diagnosis and treatment of the disease.

Making a contribution that will last
With a desire to see an improvement on life outcomes in the health sector, the team is focusing on educating the country’s doctors of tomorrow. Their unit is the only one in the country that actively involves medical students in an oncology unit, giving them practical experience and exposure to the individual cases each patient presents. They have also produced a substantial amount of research literature on childhood malignancies in South Africa as a developing country.

Driven by passion to see a better South Africa
The doctors are passionate about the work they do, and remain hopeful there will be a change in the incidence of childhood cancer   not just in decreased levels of the disease, but also in the overall state of well-being of young South Africans.

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