Can I withdraw my pension fund? What are the rules around pension fund withdrawals in South Africa? Will I have to pay tax on my pension fund withdrawal? If you’ve got questions about how to withdraw money from your South African pension before the age of 55, we’ve got the answers you’ve been searching for in this handy Q&A.
What is a pension fund and how does it work?
It sounds self-explanatory, but it’s worth revisiting. A pension fund is a fund for the purposes of retirement that is offered by South African employers to their workers, which forms part of their conditions of employment.
- Pensions are governed by the Income Tax Act and the Pensions Fund Act.
- Their purpose is to ensure you are provided for, once you reach formal retirement.
- During employment, it’s common for both the employer and employee (fund member) to make fund contributions to enjoy a tax deduction.
Once you reach your official retirement age – which is usually stipulated in your contract – you gain limited access to your pension fund and you will be able to withdraw a maximum of a third as a lump sum, which will be taxed according to the lump sum table below. It is compulsory to use the funds remaining as the basis for a monthly pension that is also taxable, however, it’s possible to choose to apply the full fund value to provide for the pension instead – no need to take the lump sum if you don’t need it!
How much tax will I pay on this pension fund withdrawal?
To work out the tax you’re in for when making this move upon official retirement, take a look at the following withdrawal tax table.
|Retirement annuity amount||Tax Rate|
|First R25 000||0%|
|R25 000 – R660 000||18% above R25 000|
|R660 001 – R990 000||R114 300 + 27% above R660 000|
|R990 001+||R203 400 + 36% above R990 000|
Can I withdraw money from my pension before the age of 55?
Before legislative amendments came along on March 1, 2019, the pension fund withdrawal rules contained in the South African Pension Funds Act made it impossible to withdraw any part of a retirement benefit or borrow money from your retirement savings before the pensionable age of 55, depending on your unique situation. You might be eligible to withdraw from your pension fund upon resignation or consequent to retrenchment. This makes sense in most cases – because it’s difficult to save money if you keep spending it – so the goal of this rule was to ensure that saving for retirement was strictly controlled.
So if you’re considering moving abroad and you’re weighing up your options on how to fund it, the smartest way to withdraw money from your pension is through financial emigration.
The extension of this emigration benefit means that as a pension fund member you can now withdraw your full pension amount in cash before the age of 55.
What is financial emigration and what are the implications?
What does financial emigration change? It changes the way the South African Reserve Bank sees you, for exchange control purposes. Nothing more, nothing less. It simply formalises your exit from SA for exchange control purposes, and does not mean you are renouncing your citizenship nor does it require you to give up your South African passport.
What is the tax on pension fund withdrawals in South Africa?
Forewarned is forearmed, and when it comes to matters of tax it’s always good to be prepared. Avoid a tax horror story by going in knowing exactly what to expect. Upon withdrawal of your pension fund, you will be taxed per the withdrawal lump sum tax table above, which applies cumulatively to all your fund withdrawals. In total, the first R25 000 is not taxed, the balance to R660 000 is taxed at 18%, the balance to R990 000 at 27% and the rest at 36%.
To learn more about the tax on your pension fund withdrawals in South Africa, read this.
FinGlobal: How to withdraw money from your pension
No need to wait until your 55th birthday – get your free, no-obligation financial report to see how much you can withdraw from your South African pension now and transfer to your new home.
We’ve already helped thousands of clients all over the world with various aspects of their cross-border financial portfolio. From pension fund withdrawals through financial emigration, tax clearance and foreign exchange – we’ve got you covered from start to finish.
After a free personal consultation, a financial emigration specialist will be able to plan your unique journey and handle every aspect of cashing in your pension funds and transferring the proceeds abroad. You’ll know exactly what you’re in for in terms of our fees and your tax liability, and you’ll be able to track the progress of everything online.
So, what are you waiting for?