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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 professor addresses genetically modified food in South Africa in inaugural lecture
2016-09-23

Description: Chris Viljoen inaugural lecture Tags: Chris Viljoen inaugural lecture

At the inaugural lecture were, from the left front,
Prof Lis Lange, Vice Rector: Academic;
Prof Chris Viljoen; Prof Gert van Zyl,
Dean: Faculty of Health Sciences; back: Prof Marius Coetzee,
Head of Department of Haematology and Cell Biology;
and Dr Lynette van der Merwe, Undergraduate
Programme Director.
Photo: Stephen Collett

The first genetically modified (GM) crops in South Africa were planted in 1998. Eighteen years later, the country is one of the largest producers of GM food in the world. Those in support of genetically modified crops say this process is the only way to feed a rapidly growing world population. But those who criticise GM food describe it as a threat to the environment and safety of the population. Who is right? According to Prof Chris Viljoen of the Department of Haematology and Cell Biology at the University of the Free State, neither position is well-founded.

GM crops play a vital role in food security

While GM crops have an important role to play in increasing food production, the technology is only part of the solution to providing sufficient food for a growing world population. The major genetically modified crops produced in the world include soybean, cotton, maize and canola. However, the authenticity of food labelling and the long-term safety of GM food are issues that consumers are concerned about.

Safety and labelling of GM food important in South Africa
In his inaugural lecture on the subject “Are you really going to eat that?” Prof Viljoen addressed the importance of the safety and labelling of GM food in the country. “In order for food to be sustainable, production needs to be economically and environmentally sustainable. On the other hand, food integrity, including food quality, authenticity and safety need to be ensured,” Prof Viljoen said. 

Labelling of food products for genetic modification was mandatory in South Africa, he went on to say. “It allows consumers the right of choice whether to eat genetically modified foods or not.” The Consumer Protection Act of 2008 requires food ingredients containing more than 5% of GM content to be labelled. 

GMO Testing Facility world leader in food diagnostic testing
In 1999, Prof Viljoen spearheaded research in developing a GM diagnostic testing platform, and in 2003, a commercial diagnostic platform for GM status certification, called the GMO Testing Facility, was founded. The facility is a licensed Eurofins GeneScan laboratory   a world leader in food diagnostic testing   and provides diagnostic detection and quantification of genetically modified organisms (GMOs) in grain and processed foods for the local and international market.

Molecular diagnostic technology the future of food integrity, authenticity and safety
With GM labelling now well-established in South Africa, the next challenge is to establish the use of molecular diagnostic technology to ensure that food integrity, including food authenticity and safety is maintained, said Prof Viljoen.

“To the question ‘Are you really going to eat that?’ the answer is ‘yes’, but let’s continue doing research to make sure that what we eat is safe and authentic.”

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