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Saving for your retirement is one of the most important things you can do for yourself during the course of your working life. In South Africa, a retirement annuity with Sanlam can be a smart, tax-efficient means of preparing for your future; especially with their rewarding Echo Bonus that pays out a percentage of your funds at the end of the term, depending on how long you’ve been saving into your retirement annuity. But what happens if you want to cash in your Sanlam retirement annuity? When, and how can you withdraw the funds in your retirement annuity, and what happens if you’re now living abroad with no plans to return to South Africa for your retirement? Let’s take a look at all of these questions.

Can I make a withdrawal from my Sanlam retirement annuity?

According to legislation that governs retirement annuities in South Africa, it is not possible to access your retirement annuity funds before the age of 55. This rule applies to all retirement annuities, including those held with Sanlam. This rule is in place to enforce saving for retirement by making the money untouchable until the age of 55 while giving you certain tax benefits that encourage and reward your consistent long term saving.

As with all rules, there are exceptions. You can access your retirement annuity funds before the age of retirement in two circumstances: if you become sick or disabled which renders you unable to work; or upon completion of your financial emigration. It’s important to bear in mind that the South African Revenue Service will have to approve your formal emigration, and early termination on your Sanlam retirement annuity may result in a termination penalty depending on the fund rules.

Can I cancel my Sanlam retirement annuity?

If the aim of the game is to cancel your Sanlam retirement annuity, thinking you’ll get your payout that way, it’s not going to happen. Access to retirement annuity funds is strictly legislated, as mentioned before. You can only touch this money once you’re 55 and even when you have blown out 55 candles on your birthday cake, access to that money is limited.

How does my Sanlam retirement annuity payout?

You can retire from your Sanlam Retirement Annuity at any time from the tender age of 55, or earlier in the event of ill-health. The retirement benefit that you will get out of your Sanlam retirement annuity will be the same as the fund value of your plan less any transaction/penalty charge, if applicable. Retiring early means that the Echo Bonus you receive on your Sanlam retirement annuity will be lower than it would have been, if you’d carried on saving until your planned retirement age. Currently, you are permitted to take up to one-third of your money as a lump sum withdrawal on retirement, while the remainder must be used to purchase an annuity that can provide you with regular pension payments.

What is the tax on my Sanlam retirement annuity?

When you retire as a member of a retirement annuity fund, you can take a portion of the interest your money has earned as a lump sum withdrawal, as long as that withdrawal does not exceed one third of the retirement interest in that fund, unless the  entire value of the fund is less than R247 500 in which case you may take the full retirement interest as a lump sum.

Here’s how SARS deals with lump sum withdrawals and retirement annuities.

What can I do if I no longer plan to retire in South Africa? Can I withdraw the funds from my Sanlam retirement annuity?

If you no longer intend on retiring in South Africa and you’ve settled permanently abroad, it might be worth your while to consider financial emigration. Once you have formalised your emigration, in terms of the Income Act you are then allowed to withdraw your Sanlam retirement annuity funds early – which means you can  access and transfer those funds abroad by means of your foreign capital allowance, once you’ve squared your tax on the lump sum with the South African Revenue Service.

What is financial emigration?

Financial emigration is the official paperwork process that informs the South African Reserve Bank that you have exited the country for financial purposes. This means that the Reserve Bank changes your status from resident to non-resident for exchange control purposes, which means you are subject to different rules when it comes to foreign exchange and international transfers, and tax.

What is financial emigration not?

  • It is not an automatic process simply because you no longer reside in South Africa, it is an official process that needs to be formally initiated by application.
  • It is not a way to change your tax residency, as financial emigration has no effect on your tax status, which means that as long as the Revenue Service considers you a tax resident, you will have an obligation to declare and pay tax on your worldwide employment income.
  • It has no effect on your South African citizenship in any way, nor does it impact your right to hold a South African passport.

Read this: here’s the difference between tax emigration and financial emigration.

Remember that financial emigration is a personal choice and is based on your unique circumstances. When weighing the decision, it’s important to note that financial emigration can have capital gains tax implications for you.

FinGlobal: financial emigration experts for future

If you’re considering financial emigration and wrapping up your financial affairs back in South Africa, it’s worthwhile selecting a trustworthy partner that has walked this journey many times.

FinGlobal has been around since 2009, and we’ve helped more than 60 000 clients with various aspects of their cross-border financial portfolio requirements. Our financial emigration team consists of certified international financial planners, lawyers, chartered accountants, tax specialists and bankers, all ready and waiting to advise you on each and every step of your journey toward your financial future.

Interested in discussing financial emigration further? Leave your contact details and we’ll be in touch to start your confidential, no-obligation assessment.