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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.
UFS students win Innovation prize
2007-11-05
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From the left are, front: Kasey Kakoma (member of the winning team) and Ji-Yun Lee (member of the winning team); back: Prof. Herman van Schalkwyk (Dean of the Faculty of Natural and Agricultural Sciences at the UFS), Lehlohonolo Mathengtheng (member of the winning team) and Prof. Gerrit van Wyk (consultant from Technology Transfer Projects who arranged the first phase of the competition).
Photo (Leonie Bolleurs):
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UFS students win Innovation prize
Prizes to the value of R100 000 were recently handed to students in the Faculty of Natural and Agricultural Sciences at the University of the Free State (UFS) during a prize winners function of the National Innovation Competition.
“The competition is sponsored by the Innovation Fund, which was established by the national Department of Science and Technology and is managed by the National Research Foundation (NRF). The competition seeks to develop innovation and entrepreneurship amongst students in higher education institutions,” said Prof. Teuns Verschoor, Vice-Rector of Academic Operations at the UFS.
Most universities in South Africa take part in the competition. “The first phase of the competition is per university where students can win prize money to the value of R100 000. The three winners then compete in the national competition, where prize money to the value of R600 000 can be won,” said Prof. Verschoor.
Eight teams from the Faculty of Natural and Agricultural Sciences competed in the local competition. The teams had to submit a business plan, which was judged by six external adjudicators.
The winning team from the Department of Microbial, Biochemical and Food Biotechnology submitted their business plan with the title: “Using bacteriophages to combat specific bacterial infections in poultry". The team, consisting of Kasey Kakoma from Zambia, Lehlohonolo Mathengtheng from South Africa, and Ji-Yun Lee from South Korea, were awarded R50 000 in cash. All three students are Master’s degree students in Microbiology in the Veterinary Biotechnology Research group at the UFS.
The team who came second was from the Department of Physics with team leader Lisa Coetzee and they received R30 000. The title of their project was “Light of the future”. The third prize of R20 000 went to Lizette Jordaan of the Department of Chemistry with a project entitled: “Development of a viable synthetic route towards a natural substrate with possible application in the industry”.
Prof. Gerrit van Wyk, former dean of the UFS Faculty of Natural and Agricultural Sciences and consultant for Technology Transfer Projects, annually drives this competition.
In his announcement of the winners of the first phase of the 2007 National Innovation Competition, Prof. Herman van Schalkwyk, Dean of the UFS Faculty of Natural and Agricultural Sciences, said innovation and entrepreneurship are important to stimulate and create sustainable economic growth in South Africa. “Through this competition universities get the opportunity to show to South Africa its capabilities in the arena of innovation and commercialisation of ideas,” he said.
To proceed to the second phase of the competition, the business plans of the three finalists from each qualifying higher education institution will be submitted for the national competition. The best three students from each participating institution will exhibit their innovations at the national awards ceremony early in 2008. The top ten entrants and subsequently the best three business plans from the total entries will then be short listed. The prize money won at the national competition has to be used for the commercialisation of the project or the founding of a company.
Media Release
Issued by: Lacea Loader
Assistant Director: Media Liaison
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl.stg@ufs.ac.za
5 November 2007
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