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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.
Department of Chemistry moves into world-class facilities
2008-05-16
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Attending the opening of the first and second phases of the Department of Chemistry's upgraded research facilities on the Main Campus of the UFS in Bloemfontein are, from the left: Prof. André Roodt, Head of the department, Prof. Herman van Schalkwyk, Dean: Faculty of Natural and Agricultural Sciences at the UFS, and Ms Tania van Zyl, Architect from Goldblatt Yuill Architects in Bloemfontein.
Photo: Leonie Bolleurs
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UFS Department of Chemistry moves into world-class facilities
The University of the Free State’s (UFS) Department of Chemistry recently moved into the first and second phases of the southern wing of the upgraded Moerdyk and annex building in which the department is situated. The wing is part an extensive project to upgrade the building and its facilities.
At a total costs of R40 million for the upgrading of the building and R30 million for the equipment, this is the biggest project of its kind in the history of the UFS.
The upgrading is taking place in four phases, of which the largest part is the southern wing. Researchers and undergraduate students recently moved into this part of the building, which consists of the first- and second-year laboratories. The laboratories consist of, among others, larger and safer venting and research-focused facilities as well as enough storage for the department’s equipment. Although one of the water-cooling systems on the roof of the building recently caught fire, all classes, practical and research work is going ahead without any disturbance.
“The putting into service of the first two phases is a milestone for the department. The project is almost half way and, when it is completed by the middle to end of 2009, we will boast with some of the best research and undergraduate laboratories in the country. It will also increase our leadership in advanced training on the continent and will strengthen the UFS’s role in the international chemistry arena,” says Prof. André Roodt, head of the department.
According to Prof. Roodt advanced research on fuel and nano particles (this is particles as big as one hundred thousandth of a human hair strand) will be conducted in the completed laboratories as part of the UFS’s research cluster initiative. Other research such as anti cancer remedies, research on various chemical processes and research on biological pharmacological remedies will also be done.
“During the past three years the department has made a significant impact on research in chemistry worldwide. Our academics are publishing in some of the world’s foremost chemistry journals and various presentations are made at international conferences. The upgraded facilities will ensure that we continue building on our high quality research and it will also ensure that our students can compete with the best in the world,” says Prof. Roodt.
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
16 May 2008
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