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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.
Relief for baby and child care at the UFS with donation from Fuchs Foundation
2007-11-17
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At the launch of the Beds of Hope campaign were, from the left: Dr Riaan Els, Chief Executive Officer of the Carl en Emily Fuchs Foundation, Prof. André Venter (Head of the Department of Paediatrics and Child Care), Ms Corné Booyens (National Grants Manager at the Carl en Emily Fuchs Foundation), Dr Nick van Zyl (Clinical Head at Universitas Hospital), and Prof. Niel Viljoen (Chief Director: Operations).
Photo: Leonie Bolleurs
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Relief for baby and child care at the UFS with donation from Fuchs Foundation
The Department of Paediatrics and Child Health at the University of the Free State (UFS) has received relief for their need of specialised healthcare for babies and children with a donation of R1,5 million from the Carl and Emily Fuchs Foundation.
As a result of this, the Beds of Hope campaign was launched today on the Main Campus in Bloemfontein. With the campaign, the department wants to address the serious need for specialised healthcare for babies and children in the central regions of South Africa.
The department is one of four out of 19 children hospitals in South Africa to receive such a donation. .
“We take care of babies and children in the Universitas and Pelonomi Hospitals in Bloemfontein who have a serious need for specialised healthcare. We are, however, the only supplier of this kind of care in the Free State, North West, Eastern Cape and Lesotho and are responsible for the specialised healthcare of more than 100 000 children. Many of our equipment are outdated and must be urgently repaired or replaced,” said Prof. André Venter, Head of the Department of Paediatrics and Child Care at the UFS.
“Because we are concerned about our patients, the department launched the Beds of Hope campaign with the help of the donation we received from the Fuchs Foundation. With the campaign, we aim to raise some R15 million in the space of two years to purchase beds and specialised equipment for the intensive care and high care units for both hospitals,” said Prof. Venter.
According to Prof. Venter, this includes babies and children with needs for specialised healthcare in the fields of intensive care, oncology, cardiology, neurology, endocrinology, gastro-enterology, neonatology and infectious diseases.
“About ten children are currently not receiving the care they need due to the lack of beds in the intensive care unit. Much more neonates can annually receive critical care if we can supply adequate facilities,” said Prof. Venter.
The other hospitals that are also supported by the Fuchs Foundation’s donation are: Healing Jozi Kids, Boikanyo Foundation and the Groote Schuur Hospital’s neonatal department.
The donation is the beginning of the first phase of the national Fuchs Healing Kids Project, which aims to improve the quality of paediatric care in South Africa.
The aim of this phase is to assist the hospitals to develop the systems and skills needed to collect more money. The research part of phase two and the building up of the hospitals’ children trust funds to be self self-supporting, will happen simultaneously. This phase will be launched early in 2008.
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
16 November 2007
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