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Preservation funds are being brought in line with retirement annuities when a member emigrates prior to the retirement date. At the moment, a member of a retirement annuity can access the funds as a withdrawal by following the process through the South African Reserve Bank if the member financially emigrates, or their visa expires.

 

Preservation fund withdrawal rules

 
Preservation funds would not be accessible due to emigration or the cessation of a visa, except if the member has not used the one withdrawal option, in which case the one withdrawal could be used to withdraw the total fund value.

 

This posed a problem for members who have benefits in a preservation fund, but already used the one withdrawal option. In this case, the member was forced to wait until the retirement date to access the retirement benefit, which would be limited in terms of the rules of the fund. The pension preservation fund would limit access at retirement to a maximum of one third, resulting in the remainder of the funds staying behind, paying a monthly pension in South Africa, subject to tax in South Africa and then having to be repatriated offshore, fully subjected to the exchange rate every month.

 

From 1 March 2019 this has change. Where a member of a preservation fund has already financially emigrated, or their visa has expired by this date, they will be able to withdraw the funds, irrespective of any prior one withdrawal being made. A member who is in the process of emigrating or their visa expires after this date, will be able to access the funds as soon as the administrative requirements are met, irrespective of any prior one withdrawal made.

 

As is the case with the withdrawal due to emigration or the cessation of a visa occurs pre-retirement, the full withdrawal amount will be taxable in terms of the withdrawal tax table – please remember that aggregation of previous retirement fund lump sums can impact the tax payable quite significantly.

 

Important to note:

  • Any retirement benefit transferred to a retirement annuity or a preservation fund (as discussed under point 2 above) will not be accessible due to emigration or the cessation of a visa; and
  • If a member has transferred their retirement benefit to an existing retirement annuity or preservation fund, this retirement benefit will not be accessible. However, any other pre-retirement benefits in the funds will be accessible as a withdrawal if the member emigrates or their visa ceases.
If you would like more information on South African preservation fund withdrawals, tax on preservation fund withdrawals or financial emigration, contact FinGlobal today. We’ll help you accessing and moving your money abroad.

 

FinGlobal is a registered South African financial services provider and a proud partner of Bidvest Financial Services.

 

*Article written by Sharon Hamman, Senior legal adviser, Momentum Limited