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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

From music to theology: Stats Unit valuable in research process
2017-02-23

Description: Prof Robert Schall Tags: Prof Robert Schall

Prof Schall, head of the UFS Statistical Consultation Unit
Photo: Leonie Bolleurs

Whether it is analysing data on church attendance, climate change in the Northern Cape or injuries among elite female hockey players, the Statistical Consultation Unit at the University of the Free State (UFS) can assist researchers from the planning of research to publication therof.

Many students and researchers think that the time to consult a statistician is after their research data has been collected. According to Prof Robert Schall, head of the unit, the most significant contribution a statistician can make to a research project is often during its planning. Preferably all researchers should consult the unit early in the research process.

Statistical consultation service free for postgraduates

The consultation unit, established in 2014 in the Department of Mathematical Statistics and Actuarial Science, provides support to all UFS researchers. This service is rendered to postgraduate students at no charge.

“The unit can make a contribution throughout the research process, from the planning of the research project, through the analysis of research data, up to the publication of the findings. I have been involved in projects where, for example, a few very simple changes to the design of a questionnaire would have saved the researcher and the statistician a lot of trouble. It will be beneficial for researchers to have their questionnaires and study proposals (where relevant), reviewed by a statistician,” Prof Schall said.

“The unit can make a contribution
throughout the research process,
from the planning of the research
project, through the analysis of
research data, up to the publication
of the findings.”

Fascinating research topics deliver fascinating data
The professor assisted in a study for the Department of Soil, Crop and Climate Sciences to determine whether rainfall in the Northern Cape had changed over the past 90 years, potentially indicating climate change.

Other interesting projects he has worked on came from the Department of Exercise and Sport Sciences. “Who will not be fascinated by data sets on aspects of rugby, cricket or even netball? One significant finding was a predictor of injury in elite female hockey players. The PhD student identified a pre-season test which predicted the occurrence of an in-season injury with 100% specificity and 100% sensitivity. The finding was quite surprising, and, if the results can be replicated, obviously would be useful in the prevention of injuries,” he said.

This is, of course, not an exhaustive list of projects the unit has worked on. “Not in my wildest dreams would I have expected to be involved in projects coming from the Faculty of Theology, or from the Odeion School of Music,” Prof Schall said.

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