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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

Space-based information plays vital role in disaster-risk reduction
2017-02-28

Africa is one of the continents most affected by disasters triggered by natural hazards. The result of climate change is a reality that affects every human being, whether it is extreme heat waves, cyclones, or the devastation of drought and floods. Climate change can provoke injuries or fatalities and affects the livelihoods of people in both rural communities and urban areas. It triggers damage and losses in various sectors of development, such as housing, road infrastructure, agriculture, health, education, telecommunications, energy, and affects routine economic processes leading to economic losses.

According to Dr Dumitru Dorin Prunariu, President of the Association of Space Explorers Europe, space programmes have become an important force defining challenges of the 21st century. “Space observation is essential for climate-change monitoring,” he said.

Dr Prunariu was the keynote speaker at a two-day symposium on climate resilience and water that was hosted by the Disaster Management Training and Education Centre for Africa (DiMTEC), at the University of the Free State (UFS). He participated in the Soviet Union’s Intercosmos programme and completed an eight day-mission on board Soyuz 40 and the Salyut 6 space laboratory, where he and fellow cosmonaut Leonid Popov completed scientific experiments in the fields of astrophysics, space radiation, space technology, space medicine, and biology. He is the 103rd human being to have travelled to outer space.

The focus of Dr Prunariu’s lecture was: Space activities in support of climate change mitigation and climate resilience.

Description: Dr Dumitriu Dorin Prunariu Tags: Dr Dumitriu Dorin Prunariu

Dr Dumitru Dorin Prunariu, the 103rd human
being in outer space and President of
the Association of Space Explorers Europe.
Photo: Charl Devenish

Space-based information, an extra eye that can detect a way out during disasters
“For governments to support communities affected by any disaster, precise and up-to-date information on its impacts is essential as a way to respond in a timely and effective way,” said Dr Prunariu.

Space-based information (derived using Earth observation, global navigation satellite systems, and satellite communications) can play a vital role in supporting disaster-risk reduction, response, and recovery efforts, by providing accurate and timely information to decision-makers.

“With space-based information, disaster management teams will be able to take note of recently established roads that may not appear in typical maps produced by National Geographic Institutes, but which could be used as emergency evacuation routes or as roads to deliver humanitarian assistance to those who require it in remote areas."

Space-based tools help decision-makers to improve planning
“Space-based tools and spatial data infrastructure is also crucial for policy planners and decision-makers in increasing the resilience of human settlements. Using geographic data and information collected before the occurrence of major disasters in combination with post-disaster data could yield important ideas for improved urban planning, especially in disaster-prone areas and highly-populated regions.

“In the recovery process, information on impact is used by governments to provide assistance to those affected, to plan the reconstruction process, and to restore the livelihoods of those affected,” said Dr Prunariu.

“Space observation is
essential for climate-
change monitoring.”

The symposium was attended by representatives from Liberia, Nigeria, Kenya, Ghana, Namibia, and Zimbabwe, with various international scientists from Europe imparting their expert knowledge on water and global resilience. The presence of these international experts strengthened global networks.

It isn't important in which sea or lake you observe a slick of pollution, or in the forests of which country a fire breaks out, or on which continent a hurricane arises, you are standing guard over the whole of our Earth. - Yuri Artyukhin: Soviet Russian cosmonaut and engineer who made a single flight into space.

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