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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 fills void in South African policing history
2017-01-02

Description: Dr Cornelis Muller Tags: Dr Cornelis Muller 

Currently a Postdoctoral fellow in the International
Studies Group, Dr Cornelis Muller’s PhD thesis explores
late nineteenth century South African policing on the
Witwatersrand.
Photo: Rulanzen Martin

“I used policing on the Witwatersrand as a lens through which to examine aspects relating to state formation within the South African Republic.”

This is how Dr Cornelis Muller, a postdoctoral fellow in the International Studies Group at the University of the Free State (UFS), described his PhD thesis called Policing the Witwatersrand: A history of the South African Republic Police, 1886-1899. The thesis fills an empirical void in the history of settler colonial policing in South Africa.

His research was also featured in the South African Historical Journal, which is published by Routledge. Dr Muller received his PhD from the UFS during the 2016 Winter Graduation ceremonies. He received a scholarship from the university to conduct his three-year research.

Relationship between police and state examined

The study presents itself as an institutional biography in which the relationship between the South African Republic Police (known as the Zarps), the state, and broader society are examined. The period under investigation was a time when political, economic, and social complexities on the Witwatersrand created tension between South Africa and Great Britain.

An important theme throughout the thesis is the relationship between the police, the mining industry, and the so-called Uitlander community. Crime was also an important contributing factor to the complex relationship that developed between the Zarps and the policed in Johannesburg’s formative years.

“Johannesburg was a town under siege by a variety of crimes which ranged from vagrancy, drunkenness, gambling, and prostitution to robbery, murder, and assault,” said Dr Muller.

Archives in South Africa and Great Britain consulted
“My thesis follows a chronological approach in which various themes accounting for the development of the police on the Witwatersrand are highlighted.” Framed within the bureaucratic and administrative functioning of the Zarps, he examined aspects relating to crime, crisis, and conflict between the police and society. The thesis also details the relationship between the police and Johannesburg’s black community.

As with any historical research, it comprised internal and external source criticism and content analyses of a wide range of archival records.

Dr Muller had the opportunity to visit several archives and libraries in South Africa and Great Britain. “Some of the more important archival collections were assessed at the National Archives in Pretoria.” These included the Archive of the State Attorney and the Archive of the Magisterial District of Johannesburg.

“My study thus adds to scholarship that seeks to provide a more nuanced understanding of the South African Republic’s administrative functioning and internal politics in the late nineteenth century,” concluded Dr Muller.

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