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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

State of our campuses: UFS closes campuses until Friday 28 October 2016 to readjust academic programme
2016-10-15

UFS announces strategy for completion of the 2016 academic year

Agreement between UFS management and student leadership in relation to residences

After almost four weeks of student protests about fees at the University of the Free State (UFS) and the subsequent suspension of the academic programme and closing of campuses, the senior leadership announced on 14 October 2016 a strategy to ensure that students will be able to complete the 2016 academic year.

The university on 13 October 2016 announced that it will shut down its Bloemfontein and South Campuses until 28 October 2016 for crucial and complex arrangements to be put in place to readjust the academic calendar and ensure that all students can complete their studies. The senior leadership did, however, make it clear that the university will not be shutting down for the remainder of 2016.

No teaching and learning activities at undergraduate and honours level will be offered between 17 October and 28 October 2016. The university will re-start teaching and learning at undergraduate and honours level in the first week of November 2016.

However, teaching and learning will not take place in the classrooms during November 2016, but through a different mode of delivery that consists of a combination of printed and recorded lectures, study materials and learning aids that will be provided by the university and delivered through Blackboard. In this manner no attempts at disrupting the rest of the academic year will affect our students’ academic programme. Students, however, will sit for the exam on campus.

Students in residence accommodation can return to campus as from 29 October 2016 and it is recommended that students who do not have off-campus internet access return to campus in order to access study material to complete the academic year.A new timetable for exams is still being developed and will be communicated as soon as the arrangements have been finalised.

Faculties have been differently affected by the loss of teaching time. Some faculties like the Faculty of Law have completed their curriculum, while other faculties like the Faculty of Natural and Agricultural Sciences require more teaching time. Some faculties, like the Faculty of Health Sciences, cannot do teaching through alternative modes of delivery.

The needs of the different faculties have been taken into account for developing a rescue plan to complete the 2016 academic year.

  • The Faculty of Health Sciences will continue its classes and clinical rotations as normal for all three schools on the Bloemfontein Campus and in the relevant hospitals. All students registered in programmes in the Faculty of Health Sciences will stay in residences for the full period of their studies and exams. Final-year medical students will graduate in December 2016 as expected.
  • In the Faculty of Economic and Management Sciences, final-year students for the Certificate in the Theory of Accounting (CTA) will stay on campus during October through to December 2016 and their classes and tests will not change.
  • Arrangements for all other faculties and programmes are being prepared and within the next week, students and parents/guardians will receive communication about how curriculum content will be completed and when the final exams will take place.
  • The university is extending the academic year so that we can recuperate all the lost teaching and learning time. The qualifications conferred on the 2016 class will be of the same quality and standards as all UFS qualifications.

The UFS is and will remain a fundamentally contact teaching and learning education university. However, under the current circumstances faced not only by the UFS, but higher-education institutions across the country, the best way of ensuring the integrity of the academic programmes in most faculties is by using an alternative way of teaching and learning. Other South African universities have chosen the same approach to be able to complete the academic year.

Instead of students going to class, they will have content delivered to them where they are (library, computer labs, their own computers, etc.) through Blackboard and printed and electronic material. This is a different way of learning but students will be carefully guided and supported.

Faculties are currently preparing all the necessary materials and instructions to support student learning.Standards and quality will be the same as if students were attending classes. Some faculties require practical laboratory work as part of their curriculum. The exam timetable will be adapted for these students to be able to complete their practical work when the academic activities commences in November 2016. The relevant faculties will communicate the schedule of practical work directly to the students.

Students in their final year will complete their studies during 2016. It is possible that in some cases the graduation ceremony for these students will be in June 2017 instead of April 2017. This will not prejudice students with bursaries, or committed employment in law firms or other businesses. The university will provide the necessary academic transcripts as proof of the completion of the relevant qualifications. None of these changes will affect postgraduate students.

The university will maintain regular communication with students and parents/guardians to update them on the new exams timetable.Faculties will communicate directly with students about issues related to their programmes.

“One of the areas in which significant progress was made, is that we were able to agree on a basis for stability with student leaders. The student protests occurred during an important time in the university’s academic calendar and the readjustment of our academic programme has put tremendous pressure on academic and support services staff, and created anxieties for parents,” said Prof Nicky Morgan, Acting Rector of the UFS.

“The senior leadership restates its commitment to free education as well as its willingness to stand together with students and other public universities to impress on government the urgency to decide on a time frame for the roll-out of free higher education for the poor and missing middle. We will use the next two weeks to meet with the leadership of Universities South Africa to coordinate collective action in this regard. We will furthermore also roll out a series of activities to inform and educate students and the general public on different models and experiences of providing free higher education,” he said.

The strategy to readjust the 2016 academic year is applicable to students on the Bloemfontein and South Campuses.


Released by:

Lacea Loader (Director: Communication and Brand Management)
Telephone: +27 51 401 2584 | +27 83 645 2454
Email: news@ufs.ac.za | loaderl@ufs.ac.za
Fax: +27 51 444 6393

 

State of our campuses #15: UFS closes campuses until Friday 28 October 2016 to readjust academic programme

State of our campuses #14: All academic activities on UFS campuses remain suspended on 13 and 14 October 2016

State of our campuses #13: Availability of information about plans for remainder of UFS 2016 calendar year

State of our campuses #12: All academic activities at UFS campuses suspended for 11 and 12 October 2016

State of our campuses #11: Academic activities on UFS campuses continue

State of our campuses #10: Impact of non-completion of the 2016 academic year on UFS students 

State of our campuses #9: Academic programme on all UFS campuses to resume on Monday 10 October 2016

State of our campuses #8:  UFS extends vacation as from 28 September until 7 October 2016, 28 September 2016

State of our campuses #7: All three UFS campuses will be closed today, 27 September 2016.

State of our campuses #6: All UFS campuses reopen on Tuesday 27 September 2016

State of our campuses #5: UFS campuses to remain closed on Monday 26 September 2016

State of our campuses #4: Decisions about the UFS academic calendar

State of our campuses #3: UFS campuses closed until Friday 23 September 2016 

State of our campuses #2: UFS Bloemfontein and South Campuses closed on Tuesday 20 September 2016 (19 September 2016)

State of our campuses #1: Academic activities suspended on UFS Bloemfontein Campus (19 September 2016)

 

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