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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

A year of various highlights for UFS
2016-12-19

Some other highlights:

Description: Prof Maryke Labuschagne, Bloemfontein Highlights Tags: Prof Maryke Labuschagne, Bloemfontein Highlights
The UFS was awarded five SARChI
(South African Research Chairs Initiative)
research chairs, the main goal of which is
to promote research excellence.
Read the full story


Description: Alumni Awards, Bloemfontein highlights Tags: Alumni Awards, Bloemfontein highlights

The UFS Chancellor’s Distinguished
Alumni Awards ceremony was held on
5 November 2016 on the
Bloemfontein Campus.
Read the full story


Description: Candice Thikeson, Bloemfontein Highlights Tags: Candice Thikeson, Bloemfontein Highlights

UFS student Candice Thikeson
completed a hat-trick of accolades when
she was named recipient of the Abe Bailey
Travel Bursary.

Read the full story

 

Description: Reitumetse Maloa, Bloemfontein Highlights Tags: Reitumetse Maloa, Bloemfontein Highlights

Reitumetse Maloa, a young researcher
at the UFS, is searching for a solution to
South Africa’s energy and electricity
problems from a rather unlikely
source: cow dung.

Read the full story


It was a year of various highlights for the University of the Free State (UFS) which has again illustrated the institution’s versatility by excelling on various fronts, from sports to research.

Some of these included Wayde van Niekerk winning a gold medal at the Olympic Games in Rio de Janeiro; research on the locomotion of the giraffe, and the awarding of honorary doctorates to people such as veteran journalist Max du Preez.

Van Niekerk breaks 400m world record

After his feat in Rio on 14 August 2016, Van Niekerk was described as “the next star” by former US sprinter Michael Johnson, whose 17-year-old 400m world record he broke in a time of 43,03. Johnson described the way in which the Kovsie outperformed the 400m field as “a massacre”.

Wayde van Niekerk was described as “the next star" by Michael Johnson, whose 17-year-old 400m world record he broke in a time of 43.03.


Max du Preez and Trevor Manuel honoured


Du Preez (Humanities) said he was excited about the young minds he had interacted with at the Winter Graduation ceremony of the UFS. The leading journalist and political analyst was one of four recipients of honorary doctorates from the university on June 30 2016. The others were Prof Joel Samoff (Humanities), former finance minister Trevor Manuel, and Dr Reuel Jethro Khoza (both Economic and Management Sciences.

Research of great value for conservation


Dr Francois Deacon, Department of Animal, Wildlife, and Grassland Sciences at the UFS, and Dr Chris Basu, a veterinarian at the Royal Veterinary College in the UK, conducted research on the manner in which giraffes locomote from one place to another.

Very little research has been done on the manner in which these animals move. The research will assist in understanding aspects such as the giraffe’s anatomy and function, as well as the energy it utilises in locomoting. Such information could help researchers understand where giraffes fit into the ecosystem and the data would be of great value for large-scale conservation efforts.

 

 

 

Read more on these highlights:

 

Wayde van Niekerk:

15 August 2016: Wayde the next big star, says Michael Johnson
20 September 2016: I don’t see myself as a star, says Wayde
27 October 2016: Wayde, Karla shine again at KovsieSport gala night
24 November 2016: Wayde keeps winning off the track

Honorary doctorates:

29 June 2016: UFS will award four honorary doctorates during Winter Graduation ceremonies
2 July 2016: Trevor Manuel and Max du Preez among the recipients of honorary doctorates at UFS graduation

Giraffe research:

9 March 2016: Giraffe research broadcast on National Geographic channel
23 August 2016: Research on locomotion of giraffes valuable for conservation of this species
18 November 2016: Studies to reveal correlation between terrain, energy use, and giraffe locomotion

 

 

 

 

 

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