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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

Researcher uses NRF funding for studies to conserve plant and animal life
2017-04-18

Description: Butterfly Tags: Butterfly

It is difficult to survey all different types of
plants and animals and is therefore necessary to
choose one representative group. Butterflies are
relatively cheap and easy to sample. They are
known to be linked to specific habitats and to
respond to human pressures, such as farming.
Photo: Dr Falko Buschke


Earth is the only planet we know of that contains life. The variety of different plants and animals is remarkable: from the giant whales that swim our oceans, to the tiny mosses that grow on the shaded sides of rocks.  Many of these plants and animals are important to humans. For example, trees provide us with oxygen to breathe, bees pollinate our crops and owls control pests. More importantly though, we can tell a lot about society from the way it cares for nature. Humans are the custodians of the planet and the way we care for nature reflects the way we value life.

Dr Falko Buschke, Lecturer at the Centre for Environmental Management at the University of the Free State, is interested in understanding how the distribution of biodiversity [the variety of living things in nature] in time and space influences the way we should conserve and manage nature.

Earth is losing biodiversity faster than at any time in human history

The planet is losing biodiversity faster than at any time in human history. “There is an urgency to conserve plants and animals before they are lost forever. Nature is complex, so the way we study it should embrace this complexity. We should not rely on limited data on one type of species from one place and assume that it will also apply elsewhere. Instead, it is important that biodiversity research is comprehensive in the types of plants and animals while also considering that ecological and evolutionary processes vary through time and across geographic space,” he said.

To conduct his research, Dr Buschke uses a variety of research tools, including biological data surveyed directly from nature, spatial data from satellite remote sensing and geographic information systems databases, and data generated though custom-built computer simulations.

"There is an urgency to conserve
plants and animals before they
are lost forever."

Field work in the eastern Free State
Although parts of the eastern Free State are considered a global priority for biodiversity conservation, it is mainly privately owned commercial farmland. This means that it is important that plants and animals can survive despite living side by side with agricultural production.

“My project investigates whether the sandstone outcrops, known as inselbergs (island-mountains), are safe havens for plants and animals. Because it is difficult to survey all the different types of plants and animals, it is necessary to choose one representative group. That is where butterflies come in. Butterflies are relatively cheap and easy to sample. They are known to be linked to specific habitats and to respond to human pressures, such as farming,” he said. “Once this butterfly data is collected, it can be linked to satellite information on plant growth patterns. This will provide a clearer picture of whether plants and animals can persist side-by-side with commercial agriculture”.

Dr Buschke has just begun surveys that will carry on until the end of this year. “This 12-month project is funded under the Foundational Biodiversity Information Programme through the South African National Biodiversity Institute (SANBI) and the National Research Foundation (NRF).

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