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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

The solution to student food insecurity is a holistic approach
2017-02-10

Description: Dietetics read more Tags: Dietetics read more

Dr Louise van den Berg from the Department of
Nutrition and Dietetics says the University of the Free State
is taking steps to teach students how to budget and make
them aware how important food nutrition is.
Photo: Pixabay 

Research at the University of the Free State (UFS) has indicated that nearly 60% of students are victims of food insecurity and suffer from hunger most of the time. The research by the UFS Faculty of Health Sciences shows that a further 25% are food insecure but are not hungry most of the time.

Senior Lecturer in the Department of Nutrition and Dietetics, Dr Louise van den Berg, says food insecurity is common among student populations across the world. However, local research shows that it is almost double that of tertiary institutions in developed countries.

Food insecurity among students caught many people off-guard
Dr Van den Berg says in South Africa nobody had really looked at the problem until recently “It seems student food insecurity has caught many people off-guard.” She says people tend to think of tertiary students as a privileged group.

The research has now indicated how deep the problem really is on campus. The students that most likely go hungry are single, male, black or coloured, and are generally first-generation students.

They are also mostly undergraduates, those paying their studies from non-bank loans or bursary means, those not living with their parents or guardians or those that need to support somebody else financially.

The results further indicate that those that are likely to suffer from hunger seldom or never have enough money for food but have to borrow money for food, have to ask for food, sell items to get food or steal food.

“A healthy student is a
successful student.”

Bursary money send back home for parents to survive
Dr Van den Berg agrees that one of the main reasons for the situation is economic stress. Research has shown students rarely spend money on food when resources are scarce. Furthermore, parents of students studying with bursaries are not always able to fully support them on campus. Some students send bursary money back home for their parents to survive.

She says other factors that contribute to campus food insecurity are that all over the world universities have terminated catered food halls due to high costs. “To a large extent this has created a food desert for students and now they need to look after themselves.”

To throw money at the problem does not seem to be the answer. 

Students are food-uncertain beings
The research indicates that young people on campus do not know where to buy food, much less the correct, nutritional food they need. Dr Van den Berg says most universities are now aware of the problem and have been taking steps. This includes teaching students how to budget and making them aware how important nutrition is for their success and their responsibility for themselves.

Universities are also looking at private funding for food aid and food schemes. Dr Van den Berg says other solutions are the restructuring of bursary fees, student self-help initiatives and food gardens.

The Faculty of Health Sciences is taking the initiative to manage a food blog on the UFS website. It will also use other social media platforms to post food-preparation videos and recipes for students.

Dr Van den Berg says it is important to grow the 15.6% group of students who indicated they are food secure because a healthy student is a successful student.

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