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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

UFS Dean scoops prestigious award for analysis of book of Malachi
2017-05-15

Description: Prof Fanie Snyman book Tags: Prof Fanie Snyman book

Willem Louw, Chairperson of the UFS Council;
Dr Khotso Mokhele , Chancellor of the UFS,
Eleanor van der Westhuizen, from the Directorate
of Research Development; Prof Francis Petersen,
UFS Vice-Chancellor and Rector; Prof Fanie Snyman,
Dean of the Faculty of Theology; and
Prof Corli Witthuhn, Vice-Rector: Research.
Photo: Johan Roux

The most sought-after award at the UFS, the annual Book Prize for Distinguished Scholarship, was recently won by Prof Fanie Snyman, Dean of the Faculty of Theology and Religion. His book, Malachi, which is about the last book of the Old Testament, has received acknowledgement through this award. He is the third academic to be awarded this prize. The book was published in English by Peeters Publishers in Belgium as part of the ”Historical Commentary on the Old Testament” series with a view to an international audience, and can be used by theology scholars and academics.

Labour of love over many years
Prof Snyman has a long history with the Bible book of Malachi. Since his student years, this book in the so-called ‘Minor Prophets’ of the Old Testament had a special charm for him. In fact, Prof Snyman has produced several publications on this concise book of 55 verses over the years. Furthermore, his doctoral thesis, as well as several papers delivered at congresses, also had this book as the theme. It took Prof Snyman about a decade to write the book.

What lies ahead for him in the future? “I am closing the book Malachi for the time being,” says Prof Snyman. “However, my research on the ‘Minor Prophets’ will continue. As a result of Malachi, InterVarsity Press in Cambridge contacted me for the writing of a book in another international commentary series, this time on the books Nahum, Habakkuk, and Zephaniah.” Prof Snyman will use his prize money of R75 000 towards this goal.

Book prize a surprise
“I can sincerely say that I did not expect the award at all. I did not know which other excellent research was submitted and thought that research from another discipline might do better. Therefore, I was completely surprised when my book was announced as the winner, and it left me speechless at the moment!” says a modest Prof Snyman.

He adds: “I am sincerely grateful for this award, but I must also thank the university. I would like to express my appreciation for the academic milieu, financial support, as well as overseas travel opportunities that have enabled me to complete the book and achieve this award.”
 
Book review by international expert
Prof Rainer Kessler, a world-renowned expert on the Bible book of Malachi, said in a review of Malachi: “The commentary on Malachi in the renowned Historical Commentary on the Old Testament series is the fruit of decades of studies on the book. [It] is full of respect towards the text. [Prof] Snyman is very cautious in his judgements and decisions. He rather presents different possibilities than uttering one-sided positions. [Finally, he] treats others always in a very fair manner. He presents their opinions as objectively as possible, especially when he does not agree. This commentary is a new and very useful tool for the study on the often underestimated last book of the Old Testament prophets.”

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