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Chances are that you’ve just been plugging away at your retirement annuity savings without much thought since you signed up for that retirement policy with Old Mutual when you first started working many, many years ago. Why is this so? The whole point of these savings is for it to happen automatically, and for you to forget that they’re there so you’re not tempted to touch those funds. Given the fact that less than 6% of South Africans are adequately prepared for retirement, withdrawals from retirement annuity funds is an area that is heavily regulated and strongly discouraged. Let’s take a look at some of the rules around retirement annuities, and under what circumstances you’ll be able to access or withdraw money from your retirement annuity.

What is a retirement annuity?

In South Africa, a retirement annuity is a policy offered by insurance companies, such as Old Mutual, that act as a tax-efficient, personal savings vehicle that aims to get you to save enough money to last you through retirement, hopefully in the lifestyle to which you have become accustomed if you’re disciplined about it!

Retirement annuities are governed by the Income Tax Act (58 of 1962), and while they’re not linked to employment, it is possible for an employer to contribute. One of the perks of having a retirement annuity means that you get a tax deduction for contributions made, which is beneficial where the income is earned in South Africa.

What do I need to know about policy surrender for Old Mutual retirement annuities?

If you were hoping to cancel your Old Mutual retirement annuity before you hit retirement age in order to cash in on those funds, you’re out of luck. That’s because access to the funds in the retirement annuity is strictly legislated, so as a rule, this money that you’ve saved is only accessible upon the legislative age of retirement, which is the age of 55. Even when you turn 55, that access is limited.

How do I stop or cancel my Old Mutual retirement annuity?

It is possible to get your retirement annuity paid-up and you’ll need to inform your insurance provider, Old Mutual of your intention. Following through on this cancellation might incur a policy surrender penalty and isn’t an instant ticket to turning your retirement savings into cash. This is because legislation only allows for your paid-up retirement annuity to be repaid to you only if the balance is less than R7 000, otherwise you have to wait until you are 55 for your money.

What are the benefits of a retirement annuity?

These products have certain positives, like income tax advantages where contributions are tax deductible within a certain range. Growth (in other words interest) within the retirement annuity is also tax-free while you’re working, but you’ll be taxed accordingly when accessing the benefit from age 55.

What happens when I reach the age of 55 and I’m ready to access my retirement funds?

When accessing your funds at retirement, you’ll only be able to take a third of the fund value as cash. The exception to this is where the total retirement interest per fund is currently less than R247 500.

The remaining two-thirds of your retirement annuity? It is compulsory for the balance to be used to purchase an annuity, and this is not something that’s at the discretion of insurance providers like Old Mutual – it’s law. As a result, it’s a good idea to touch base with a financial adviser to assist you in making any decisions regarding the cancellation or withdrawal of money from your Old Mutual retirement annuity before the age of 55. However, it’s not compulsory to cash out the one-third and you can decide to apply the full fund value toward your monthly pension provision, which in turn is fully taxable.

What can I do to withdraw cash from my retirement annuity?

Whether you’re an Old Mutual client or not, as a South African resident your access to your retirement annuity is severely limited before you reach the age of 55, and even once you’ve retired, you can’t cash in the full amount.

However, once you have formalised your financial emigration, in terms of the Income Act you become eligible for early withdrawal of your retirement annuity, which allows you to access and transfer these funds abroad as part of your foreign capital allowance, less your tax liability.

What is financial emigration?

Financial emigration is the formal process of letting the South African Reserve Bank (SARB) know that you have permanently left the country for financial purposes. From an exchange control perspective, this then changes your status with the South African Reserve Bank from resident to non-resident.

Even if you have physically emigrated from South Africa, financial emigration is not an automatic process, it does not change your tax residency (and thus your obligation to keep the South African Revenue Service (SARS) happy by paying your tax). And, in case you were wondering, financial emigration doesn’t affect your South African citizenship in any way.

It’s important to remember that financial emigration is a personal choice and is based on your unique circumstances.

What are the advantages of financial emigration?

  • It becomes much simpler to access and transfer your South African capital and income abroad if you live in another country.
  • It’s your only chance to access in full and transfer any policy proceeds from retirement savings before the maturity date (less tax, of course).
  • It makes the remittance of any South African inheritance straightforward.

FinGlobal: Financial emigration specialists

Need some advice on how to handle your financial emigration and your retirement annuity withdrawal to ensure you get the best possible outcome? We can handle it!

We pride ourselves on fast, efficient and convenient service, and we’re ready to help you with all your foreign exchange, tax clearance and exchange control requirements. Whether it’s by phone or email. FinGlobal can assist you with the entire process of financial emigration from South Africa.