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20 August 2025
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Story Dr Annelize Oosthuizen
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Photo Supplied
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.
Childhood obesity should be curbed early
2017-03-15
Serious intervention by parents is required to deal
with childhood obesity. Prof Louise van den Berg and
a group of final-year PhD students worked on a study
about the prevalence of obesity in six-year-olds in
South Africa.
Photo: Supplied
If your child is overweight when they start school at the age of six, unless you do something about it at that point, the indications are they are going to be overweight teenagers and obese adults. This is according to University of the Free State’s Prof Louise van den Berg.
Evidence has shown that overweight children and teenagers have a greater risk of developing lifestyle diseases such as type 2 diabetes, hypertension and cardiovascular disease later in life, and dying prematurely.
Obesity is a global pandemic rapidly spreading among adults and children, in developed and developing countries alike.
Dr Van den Berg worked with Keagan Di Ascenzo, Maryke Ferreira, Monja-Marie Kok, Anneke Lauwrens, all PhD students with the Department of Nutrition and Dietetics, to conduct the study. Their research found that children who are overweight by the time they turn six should be screened for weight problems.
Why six-year-olds?
Children who are overweight between the ages of two and five are five times more likely to be overweight when they are 12. There are two periods in a normal life cycle when the body makes new fat cells. The first is in the uterus and the second is around the age of six. The second phase lasts from the age of six to puberty.
The study assessed the prevalence of obesity in six-year-olds as part of a campaign in South Africa to raise awareness of the problem among parents and educators.
A total of 99 children were chosen from seven schools in Mangaung, the capital city of Free State. The schools were chosen from quintile four and five schools, which when measured by their own resources and economic circumstances, are well resourced and serve largely middle-class and wealthy communities.
The children’s weight, height and waist circumference were measured and used to calculate a body mass index score and waist-to-height ratio. Both these figures are good predictors for future lifestyle disease risks such as type 2 diabetes, hypertension and cardiovascular disease. A person with a good waist-to-height ratio can wrap a piece of string equal to their height around their waist at least twice.
When the children had a higher body mass index, they also had an increased waist to height ratio. The study found one in four children from the schools surveyed were overweight when they started primary school.
Nipping the fat in the bud
Although there are many factors that play a role in preventing childhood obesity, parents’ perceptions of their children’s weight play an important role. A recent study found that more than 50% of parents underestimate the weight of their obese children. These parents remain unaware of the risks their children face and are not motivated to take any action.
At least half of the parents whose children are overweight struggle to recognise their children’s weight problems fearing that they will be labelled or stigmatised. By the time they turn six overweight children should be referred to dieticians and nutritionists who are qualified to guide their parents in getting them to eat well and be more physically active at pre-primary and primary school.
The high prevalence of weight problems among six-year-olds found in this study is an urgent call to healthcare professionals to step up and empower parents, educators and children with the necessary skills for healthy dietary practices and adequate physical activity.