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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

Inaugural lecture: Prof. Annette Wilkinson
2008-04-16

A strong plea for a pursuit of “scholarship” in higher education

Prof. Annette Wilkinson of the Centre for Higher Education Studies and Development in the Faculty of the Humanities at the University of the Free State (UFS) made as strong plea for a pursuit of “scholarship” in higher education.

She said in her inaugural lecture that higher education has to deal with changes and demands that necessitate innovative approaches and creative thinking when it concerns effective teaching and learning in a challenging and demanding higher education environment. She referred to a recent research report prepared for the Council for Higher Education (CHE) which spells out the alarming situation regarding attrition rates and graduation output in South African higher education and emphasises factors leading to the situation. These factors include socio-economic conditions and shortcomings in the school and the subsequent under preparedness of a very large proportion of the current student population. However, what is regarded as one of the key factors within the sector’s control is the implementation of strategies for improving graduate output.

She said: “The CHE report expresses concern about academics’ adherence to traditional teaching practices at institutions, which have not changed significantly to make provision for the dramatic increase in diversity since the 1980s.

“Raising the profile of teaching and learning in terms of accountability, recognition and scholarship is essential for successful capacity-building,” she said. “The notion of scholarship, however, brings to the minds of many academics the burden of ‘publish or perish’. In many instances, the pressures to be research-active are draining the value put on teaching. Institutions demand that staff produce research outputs in order to qualify for any of the so-called three Rs – resources, rewards and recognition.

“These have been abundant for research, but scarce when it comes to teaching – with the status of the latter just not on the same level as that of research. From within their demanding teaching environments many lecturers just feel they do not have the time to spend on research because of heavy workloads, that their efforts are under-valued and that they have to strive on the basis of intrinsic rewards.”

She said: “It is an unfortunate situation that educational expertise, in particular on disciplinary level, is not valued, even though in most courses, as in the Programme in Higher Education Studies at the UFS, all applications, whether in assignments, projects or learning material design, are directly applied to the disciplinary context. We work in a challenging environment where the important task of preparing students for tomorrow requires advanced disciplinary together with pedagogical knowledge.”

Prof. Wilkinson argued that a pursuit of the scholarship of teaching and learning holds the potential of not only improving teaching and learning and consequently success rates of students, but also of raising the status of teaching and recognising the immense inputs of lecturers who excel in a very demanding environment. She emphasised that not all teaching staff will progress to the scholarship level or are interested in such an endeavour. She therefore suggested a model in which performance in the area of teaching and learning can be recognised, rewarded and equally valued on three distinct levels, namely the levels of excellence, expertise and scholarship. An important feature of the model is that staff in managerial, administrative and support posts can also be rewarded for their contributions on the different levels for all teaching related work.

Prof. Wilkinson also emphasised the responsibility or rather, accountability, of institutions as a whole, as well as individual staff members, in providing an environment and infrastructure where students can develop to their full potential. She said that in this environment the development of the proficiency of staff members towards the levels of excellence, expertise and scholarship must be regarded as a priority.

“If we want to improve students’ success rates the institution should not be satisfied with the involvement in professional development opportunities by a small minority, but should set it as a requirement for all teaching staff, in particular on entry into the profession and for promotion purposes. An innovative approach towards a system of continuous professional development, valued and sought after, should be considered and built into the institutional performance management system.”

As an example of what can be achieved, Prof. Wilkinson highlighted the work of one of the most successful student support programmes at the UFS, namely the Career Preparation Programme (CPP), implemented fourteen years ago, bringing opportunities to thousands of students without matric exemption. The programme is characterised by dedicated staff, a challenging resource-based approach and foundational courses addressing various forms of under preparedness. Since 1993 3 422 students gained entry into UFS degree programmes after successfully completing the CPP; since 1996 1 014 of these students obtained their degrees, 95 got their honours degrees, 18 their master’s degrees and six successfully completed their studies as medical doctors.

Prof. Wilkinson said: “I believe we have the structures and the potential to become a leading teaching-learning university and region, where excellence, expertise and scholarship are recognised, honoured and rewarded.”

 

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