If you’ve moved to the UK or a move is in the cards for you, one of the things you’re going to have to think about when planning your future and your finances revolves around deciding where and how you’re going to retire. Whether your retirement destination is the UK, or you’d just like to take your savings with you to put them to work abroad until you’re ready to retire, you’ll have to consider your options in terms of transferring your South African retirement annuity or pension fund to the UK.
How do I transfer my South African retirement annuity to the UK?
As a South African resident, access to your retirement annuity funds and pension savings is limited. Aside from exceptions regarding resignation, retrenchment or disability, you’re only allowed to access the funds you’ve put into your retirement savings vehicles after you’ve reached the age of 55 and you’ve fulfilled all the administrative requirements. Even then you’re only allowed to access one-third of the fund amount as cash, plus you have to pay tax on this lump sum withdrawal. It’s a lot to wrap your brain around. With the remainder, you are obliged to purchase an annuity in South Africa that will pay you a monthly pension income for the rest of your life, which is fully taxable.
This means that as long as you’re a South African resident, you can’t touch your pension or retirement annuity funds before you’ve blown out 55 birthday candles. The way to get around this? It involves financial emigration. The Income Tax Act provides for an individual to access the full amount of their retirement savings upon successful formalisation of their emigration for financial purposes, less early surrender penalties, and tax.
In other words, once you’ve completed the process of financial emigration you can cash in the full amount of your pension and easily transfer the proceeds abroad. While the process of financial emigration is relatively complicated, this is only due to the high number of participants in this process, including insurance companies, pension providers, the South African Revenue Service (SARS), the South African Reserve Bank (SARB) and commercial banks.
First, you’ll need to determine how much you’ve got available for transfer to the UK from your South African pension after tax and fees. While you’re free to do with the proceeds as you please, it’s advisable to seek professional tax advice because reinvesting your funds in a UK pension scheme could provide significant tax efficiency on your savings and do wonders for your golden years’ nest egg balance.
Why transferring your retirement annuity or pension abroad to the UK makes sense
You get unfettered access to the full post-tax value of your retirement savings. Shifting these funds abroad can be a positive step in protecting your future, by counterbalancing the investment and currency risk in South Africa in order to lessen the impact of the Rand volatility on the funds you plan to use to live your best retired life. Once you’ve cashed in your South African retirement annuity or pension fund, you could even invest offshore in hard currency. Anything is possible!
Transfer your South African pension to the UK
Once your South African pension transfers offshore, you may need advice on reinvesting and local tax implications of your destination country. The right financial emigration partner will see financial emigration specialists work closely with financial planners and tax professionals to ensure that you get the best advice for your unique circumstances and the most efficient tax structure for your retirement goals. A smart route for South African expats living in the UK is to invest the proceeds of their payout into a new (or existing) UK pension fund.
Why transferring your South African pension savings and investing in a UK pension makes sense:
- Protect your retirement capital: your savings will be in a stable, well-traded currency.
- Your future is in Pounds: if you move back to SA your income pay-out is in Pounds.
What is financial emigration?
Financial emigration = formal emigration (for exchange control purposes) + tax emigration (for tax purposes)
Formal emigration is the process whereby you inform the South African Reserve Bank that they should change your exchange control residency status from “resident” to “non-resident”.
Tax emigration is the process whereby you inform the South African Revenue Services to change your tax residency status from a South African tax resident to a UK tax resident. This event triggers a capital gains tax which can be deemed an exit tax from South Africa.
What are some of the advantages of financial emigration?
- Easy to access and transfer South African capital and income abroad because you’re not limited by the same exchange control restrictions as South African residents.
- You can access and cash in the full value of your retirement annuity before the maturity date.
- You’ll make it easy to get paid any future South African inheritance.
- You may qualify for a tax refund once you exit from your pension fund
FinGlobal: Get the financial emigration experts on your team
Financial emigration can be quite daunting and the complexity of the process can quickly become overwhelming if you attempt it on your own. The entire process – from submitting your documents to accessing your funds – can be as quick as six weeks but can take up to six months in special circumstances.
However, there are a lot of rules, regulations, and requirements to meet and supporting documentation to provide at every stage in order to ensure a successful transition, especially when it comes to transferring your South African pension to the UK, in light of how many different entities will be involved in such transactions. That’s why it makes sense to partner with FinGlobal – we’ve built our name as the financial emigration specialist of choice for South African expats the world over.
Get in touch with FinGlobal today to start your free, no-obligation financial emigration assessment!