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Retirement annuities (RAs) are designed with long-term saving in mind. Legislation surrounding the governance of RAs is extremely strict, and access to the funds in your retirement annuity is tightly restricted in South Africa before the retirement age of 55. All of this is geared toward shifting the shifting stats upward in a positive fashion, as currently only a dismal 6% of South Africans have prepared adequately for their golden years. Saving for your retirement while living and working in South Africa makes sense. However, if you’ve moved away and you’re currently living and working abroad, you might want to think about whether your current retirement plan (and the associated RAs) still makes sense for you.

Can I cash in my retirement annuity in South Africa early?

As long as you are a South African resident for exchange control purposes (i.e.: you have not completed the process of financial emigration (also known as formal emigration) to change your status with the South African Reserve Bank to non-resident) you will not be permitted to withdraw the funds in your retirement annuity before the age of 55, with the exception of a handful of circumstances relating to resignation, retrenchment or changing jobs. Even if you were to cancel your retirement annuity, your insurance provider is only allowed to pay out your money when you’re of retirement age. This means that as long as you’re living and working in South Africa, your retirement annuity is untouchable.

If you’re living and working abroad, this changes everything – opening a new route to access your South African retirement annuity and make your early withdrawal. What route are we talking about? Financial emigration.

Hold up. What is financial emigration?

Don’t worry. It’s not as complicated nor as terminal as it sounds. Financial emigration simply refers to the process that needs to be completed in order for the South African Reserve Bank to change your status to non-resident for exchange control purposes.

Why would you consider financial emigration?

Once your financial emigration is approved, you can then transfer assets from South Africa at any time in the future, without seeking additional approval (like Tax Clearance Certificates) from an exchange control perspective. Essentially financial emigration creates a free flow of capital for you, and as previously mentioned, it’s your only ticket to cashing out of your annuity early.

What are the benefits of financial emigration?

  • Easy access and transfer of South African funds if you reside in another country.
  • Early withdrawal of retirement annuity policies before maturity date.
  • Simpler remittance of South African source inheritances.

What can you do with your South African retirement annuity funds after early withdrawal?

Where there’s potentially large sums of money involved, the South African Revenue Service is always interested. Cashing in your retirement annuity in South Africa will attract the withdrawal lump sum tax. The amount payable is determined by applying a tax table specific to retirement fund withdrawals, contained in the Second Schedule to the Income Tax Act. Obviously, the bigger the lump sum, the higher the tax bracket and amount payable.

Once your tax is paid, and the proceeds from your RA withdrawal have been transferred abroad, you’re free to do with your funds as you please. That’s right. It’s your money and you’re not obliged to reinvest it in a pension or retirement fund in your new home country, unless you absolutely want to! Let’s take a look at four things you could do with your newfound windfall.

  1. Travel the world. Whether it’s alone, or with your significant other or a friend – there’s so much to see. Pick a destination, pack a bag and get started! You could take a cruise. You could go backpacking. You could take a cross-continental train journey or a hot air balloon ride. The possibilities for making priceless memories and real-life experiences are endless.
  2. Invest in property. Whether it’s buying a bigger house, your first house, or building your dream house, or simply extending your current dream house – the money is yours to do with as your please. Feel like building an indoor sauna or a soundproof recording studio in your attic? Go ahead. You do you!
  3. Get an education. Furthering your education, getting the official qualification you need for a promotion or learning a new skill to broaden your horizons is never a waste of money. It could be for your children or yourself. You’re never too old to learn something new!
  4. Start a business. Depending on how much you’ve got saved up, you might have to start lean and bootstrap, but that’s all the rage these days anyway. Every major business that’s successful today once had a humble beginning and garage roots. Your retirement annuity proceeds could fund the start of your empire.

FinGlobal: Here to help you cash out your retirement annuity early

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 retirement annuity now and transfer abroad.

We’ve already helped more than 60 000 clients all over the world with various aspects of their cross-border financial portfolio, from retirement annuity encashment, through to pension fund withdrawals , tax clearance and foreign exchange. We can also assist you with financial emigration and in addition record your tax emigration (tax exit) with SARS if you did not file your final tax when you left. We’ve got your needs covered from start to finish.

So, what are you waiting for?