Latest News Archive

Please select Category, Year, and then Month to display items

Demystifying the two-pot retirement system

20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied

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

Researchers celebrated for outstanding achievements

2017-05-05

From left, NRF P-rated researcher,
Dr Daniel Spence; Directorate Research
Development, Eleanor van der Westhuizen;
Vice-Chancellor and Rector Prof Francis Petersen;
Dean of Faculty of Theology Prof Fanie Snyman;
and Vice-Rector: Research, Prof Corli Witthuhn.
Photo: Johan Roux

The University of the Free State’s (UFS) Vice-Rector: Research, Prof Corli Witthuhn, hosted a Research Celebration, at which the new National Research Foundation (NRF) ratings, presentation of the UFS Book Prize and the research support award were announced. The UFS Chancellor, Dr Khotso Mokhele, and Chairperson of the UFS Council, Mr Willem Louw, were in attendance among academics and staff members.

An astounding preface
Presenting the opening remarks, UFS Vice-Chancellor and Rector, Prof Francis Petersen, congratulated all researchers and prize recipients on behalf of the rectorate. He applauded all researchers who had put their best foot forward and were acknowledged by the NRF. Furthermore, Prof Petersen said that the success of UFS researchers informed that the university received international recognition. “Research has the ability to play an active role in transformative action that leads to change. We are striving to be a leader in research output,” said Prof Petersen.

Humble and gracious recipient
Prof Fanie Snyman, Dean of the Faculty of Theology, walked away with the most sought-after award of the day, the UFS Book Prize for Distinguished Scholarship, for his book, Malachi, on the last book of the Old Testament. The book was published in Germany and can be used by theology scholars and academics.

“I have no words, I am sincerely grateful for this award, but I must also thank the university. I am grateful for the support that has enabled me to complete the book and achieve this award,” said Prof Snyman. He is the third academic to be awarded this prize.

University reaches new heights
The university’s new NRF-ratings were celebrated. The UFS has 27 new rated researchers and seven researcher’s ratings were renewed. Prof Jonathan Jansen received a NRF A-rating and Dr Daniel Spence a P-rating.

The Directorate of Research Development’s Eleanor van der Westhuizen was awarded the Research Support Award, which is to acknowledge those who accelerate and propel research and/or researchers.

Back

Economic and Management Sciences

Education

Health Sciences

The Humanities

Law

Natural and Agricultural Sciences

Theology and Religion

Open Distance Learning

Business School

We use cookies to make interactions with our websites and services easy and meaningful. To better understand how they are used, read more about the UFS cookie policy. By continuing to use this site you are giving us your consent to do this.

Accept