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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 researcher selected as emerging voice
2016-11-03

Description: Andre Janse van Rensburg  Tags: Andre Janse van Rensburg

André Janse van Rensburg, researcher at the
Centre for Health Systems Research and Development
at the University of the Free State, will be spending
almost three weeks in Vancouver, Canada. He will be
attending the Emerging Voices for Global Health programme
and Global Symposium on Health Systems Research.
Photo: Jóhann Thormählen

His research on the implementation of the Integrated School Health Programme (ISHP) in rural South Africa led to André Janse van Rensburg being selected to become part of the Emerging Voices for Global Health (EV4GH) group.

It is a collection of young, promising health policy and systems researchers, decision-makers and other health system professionals. A total of 222 applications from 50 countries were received for this programme, from 3-19 November 2016 in Vancouver, Canada.

The EV4GH is linked to the fourth Global Symposium on Health Systems Research (HSR2016), from 14-18 November 2016. It also taking place in Vancouver and Janse van Rensburg will be taking part, thanks to his research on the ISHP in the Maluti-a-Phofung area. He is a researcher at the Centre for Health Systems Research & Development (CHSR&D) at the University of the Free State (UFS).

The theme of the HSR2016 is Resilient and Responsive Health Systems for a Changing World. It is organised every two years by Health Systems Global to bring together roleplayers involved in health systems and policy research and practice.

Janse van Rensburg also part of Health Systems Global network
The EV4GH goals relate to the strengthening of global health systems and policies, particularly from the Global South (low-to-middle income countries with chronic health system challenges). The initiative involves workshops, presentations, and interactive discussions related to global health problems and solutions.

As an EV4GH alumni, Janse van Rensburg will become part of the Health Systems Global network. Partnering institutions include public health institutes from China, India, South Africa, Belgium, and the UK.

“The EV4GH is for young, promising health
policy and systems researchers, decision-makers
and other health system professionals.”

Research aims to explore implementation of schools health programme
In 2012, the ISHP was introduced in South Africa. This policy forms part of the government's Primary Health Care Re-engineering Programme and is designed to offer a comprehensive and integrated package of health services to all pupils across all educational phases.

Janse van Rensburg, along with Dr Asta Rau, Director of the CHSR&D, aimed to explore and describe implementation of the ISHP. The goals were to assess the capacity and resources available for implementation, identify barriers that hamper implementation, detect enabling factors and successful aspects of implementation and disseminate best practices in, and barriers to, ISPH implementation with recommendations to policymakers, managers and practitioners.

“A lot of people were saying they don’t
have enough resources to adequately
implement the policy as it is supposed to
be implemented.”

Findings of project in Maluti-a-Phofung area
Janse van Rensburg said the ISHP had various strengths. “People were impressed with the integrated nature of the policy and the way people collaborated across disciplines and departments. The school team were found to work very well with the schools and gel well with the educators and principles.”

He said the main weakness of the implementation was resources. “A lot of people were saying they don’t have enough resources to adequately implement the policy as it is supposed to be implemented.

“Another drawback is the referral, because once you identify a problem with a child, the child needs to be referred to a hospital or clinic.” He means once a child gets referred, there is no way of knowing whether the child has been helped and in many cases there is no specialist at the hospital.

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