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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

Famelab, the Pop Idols of science communication
2017-03-09

Description: Famelab Tags: UFS, CUT, Science, Competition, research, British Council, Famelab, NRF

Oluwasegun Kuloyo and Zanele Matsane proved to be
Bloemfontein’s young and wittiest science researchers.
They will represent the Free State at the Famelab
national semifinals in Johannesburg.
Photo: Oteng Mpete

Imagine sharks with laser beams attached to their heads and enzymes that wear coats, and yeasts that stage a coup d’état in your body when agitated. This was all explored at the FameLab Science Communication Competition. 

Hosting the FameLab regional competition was a collaborative effort between Dr Mikateko Hoppener, from the University of the Free State’s (UFS), the Centre for Research on Higher Education and Development (CRHED), and Edith Sempe from the Central University of Technology (CUT), Research and Development Unit. Taking place for the first time in the Free State, the event was held at the UFS Centenary Complex on 2 March 2017.

Witty minds make science fun

FameLab is a competition that promotes science and technology by creating a space for scientists to find their voices and reach public audiences. The Free State regional competition had 18 contestants and two emerged victorious on the day. Contestants had to ensure their three-minute talks were fun, charismatic, clear and entertaining.

The two regional winners were Oluwasegun Kuloyo, a PhD student with the department of Microbial Biochemical and Food Biotechnology at UFS, and Zanele Matsane, a Construction Management PhD student at CUT. 

Kuloyo's research deals with the management of the candida yeast which exists in most people’s bodies and which, with a healthy immune system can be kept under control, but when an immune system is compromised, the yeast reacts volatilely and can potentially lead to death in HIV/AIDS patients. 

Matsane’s research is centred on collaborative construction management inspired by the Toyota manufacturing process. She hopes to resolve the silos of construction and bring about a more harmonious and fluid process to construction projects, thus ensuring their successful completion. 

The panel of judges consisted of Oteng Mpete UFS Media Liaison Officer, Dr Elizabeth Conradie from the CUT Innovation Hub, and Prof Willie du Preez from the CUT Centre for Rapid Prototyping and Manufacturing, as well as Robert Inglis from JiveMedia Africa.

Local scientists become jet-setters 
The two regional winners will head to Johannesburg to compete at the FameLab national semifinals, and the South African winner will go on to compete against winners from over 30 countries on an international stage, at the Cheltenham Science Festival in the UK.

FameLab is a programme of the Cheltenham Science Festival and is implemented locally by the South African Agency for Science and Technology Advancement (SAASTA), the British Council, and JiveMedia Africa. The competition has been running in South Africa for the past five years.

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