Everyday people in this situation contact us to ask what they should do about their retirement annuities and preservation funds left behind in South Africa. We tell them, the fact that they now live in the UK offers them a unique opportunity to increase the value of their retirement investments and maximise their pension income in either country – we think that’s too good to be ignored!
To explain, let’s look at a typical case we have recently completed: Pieter lives in the UK, is a 40% taxpayer, has a UK pension and also a retirement annuity in South Africa with a value of R694,720. He’s unsure if he’ll stay in the UK or return to South Africa.
After considering the facts, we informed Pieter of the options available to him and he elected to make a full withdrawal from his retirement annuity in South Africa and transfer the proceeds, net of tax, into his UK pension. Making this additional lump sum contribution into his UK pension attracts tax relief from HMRC, which results in the significant “top up” to his contribution, as illustrated below:
| SA pension withdrawal | |||||
| Fund value | (R694,720) | £38,595 | amount taken out of SA pension | ||
| Tax paid to SARS on withdrawal | (R123,673) | £ 6,870 | |||
| Net amount transferred to UK | (R571,047) | £31,725 | |||
| UK pension contribution | |||||
| Lump sum investment | £31,725 | ||||
| “Top-up” from HMRC | £14,277 | ||||
| Total investment | £46,002 | amount invested in UK pension with tax relief | |||
Assume exchange rate of £1 = R18.00
We advised Pieter to take this action because we believe it ticks all the boxes, whether he remains in the UK or returns to South Africa. Apart from an immediate increase in the value of his pension contribution he will benefit either way, as follows:
Stays in the UK
- exchange rate risk is eliminated; all retirement funding is based in sterling
- UK pensions offer more flexibility at retirement than South African pensions, e.g. 100% withdrawal option
- UK pensions generally have lower charges than South African pensions
- administrative burden of dealing with a South African pension in the future, from the UK, is removed
Returns to South Africa
- income in retirement can be tax free, in South Africa
- hedged against a decline in the rand
- UK pensions generally have lower charges than South African pensions
Incidentally, you do also have the option to transfer the proceeds of your retirement annuity or preservation fund to the UK or wherever you choose, and use the money as you wish; you don’t have to invest into a UK pension.
Obviously each case is unique and needs to be carefully investigated and considered in its own right, but to help you make the correct, fully informed decision, at the right time, why not take advantage of the assessment and consultation service we provide – it’s completely free and without obligation …….. but don’t delay as timing can be key.
To speak to an international consultant and get the best advice simply telephone 0793 746 4649 in the UK or let us call you.