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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 has a contingency plan for load shedding
2008-02-13
The University of the Free State (UFS) has put in place a contingency plan to ensure that there is minimal disruption to the normal academic operations of its Main Campus in Bloemfontein whenever load shedding occurs.
The plan includes alternative arrangements for certain lectures that fall within the load-shedding schedule provided by Centlec, the emergency power generation for certain lecture halls and buildings, as well as the functioning of the UFS Sasol Library. This is in addition to emergency power equipment that has already been ordered for the larger lecture-hall complexes.
Fortunately, the Qwaqwa Campus has adequate emergency power generation capacity. The situation on the Vista Campus in Bloemfontein is being monitored, but the same guidelines will apply as on the Main Campus.
On the Main Campus in Bloemfontein the following alternative arrangements regarding the timetable for evening classes will come into effect when load shedding occurs:
- An alternative module and venue timetable has been compiled so that classes that cannot take place on weekdays as a result of load shedding can be accommodated on Fridays and Saturdays.
- Classes that are presented in the timeslot 18:10 to 21:00 on Thursdays are alternatively accommodated in the same venues at the same times on a Friday.
- Classes that take place in the timeslot 20:10 to 22:00 on Wednesdays are alternatively accommodated in the timeslot 08:10 to 12:00 on Saturdays, in a few cases in different venues from those scheduled initially.
- After consultation with students, lecturers will decide whether the alternative timetable will apply when load shedding does indeed occur or whether the alternative timetable will be a permanent arrangement.
Some other steps that have been taken regarding the functioning of lecture halls include:
- The design and installation of emergency power equipment in all the large lecture-hall complexes within the next few months. This includes the Examination Centre, Flippie Groenewoud Building, the Stabilis and Genmin lecture halls.
- The ordering of a larger generator for the Agriculture Building to simultaneously provide essential research equipment such as refrigerators, ovens and glasshouses with emergency power.
- An investigation into the optimal utilisation of present emergency power installations.
The purchasing of loose standing equipment such as battery lights, uninterruptible power supplies, loose-standing generators, etc.
The UFS Sasol Library will continue as normal as far as possible though there may be some minor changes as a result of load shedding. The library has an emergency generator that will be used in the event of load shedding to allow students and other users to exit the library. If load shedding occurs during daylight hours, the library will remain open with limited services. If the load shedding occurs after 6 pm (18:00), all users will be allowed to exit and the library will remain closed until the next day.
A comprehensive investigation into the university’s preparedness for and management of long term power interruptions is also receiving attention.
More information on the contingency plan for load shedding can be obtained from the UFS website at www.ufs.ac.za/loadshedding.
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
13 February 2008