South Africans all over the world are feeling the financial pressure caused by the COVID-19 pandemic. Most people have had their hours reduced, their pay cut and many are facing retrenchment. If ever there was a “desperate times call for desperate measures”, we are in the thick of it. As a South African living and working abroad, what are your options if you’re having cash flow difficulties? Is it possible to cash in your retirement annuity early? What are the retirement annuity fund rules around this? Will you have to pay a tax penalty?  Let’s take a look at answering these important questions so you can make an informed decision, and more specifically, cashing in retirement annuity South Africa:

What are the rules around cashing in your South African retirement annuity early?

As a South African resident (for exchange control purposes) you are not allowed to touch, access or withdraw your retirement annuity funds before the legally mandated age of 55. This rule is in place to help South Africans prepare for their retirement, as currently only 6% of the population is adequately prepared for their golden years. By making it near impossible to touch these savings (there are always exceptions to every rule) the legislative intention is to allow retirement annuity policyholders to benefit from various tax deductions, as well as cumulative interest perks on their contributions (the longer you save, the bigger the ultimate reward) ; all of which make it easier to lay away that nest egg for life after work.

Can I cash in my South African retirement annuity early?

Generally speaking, you cannot cash in your retirement annuity before the age of 55, bar a limited number of exceptions which apply to your employers’ retirement fund if you are retrenched, resign or change employers. Not even cancelling your retirement annuity would allow you to get your hands on that cash for many years still, because RA providers are prohibited by law from paying out your money before the age of 55.

Is there any other way you can get your hands on your retirement annuity savings early? If you’re a South African living and working abroad, and you no longer have any intention of retiring back home, there’s a way for you to cash in that nest egg: it’s known as retirement annuity withdrawal on financial emigration.

Once you are no longer a resident of South Africa for exchange control purposes (in other words you have become a financial emigrant) you will be allowed to apply to your retirement annuity fund to withdraw your savings early. Once you have met all the administrative requirements that govern your retirement annuity fund, you will be paid out the proceeds (less tax and possible early termination penalty charges) into your non-resident blocked bank account. Once the money has landed there, you’ll find it much easier to get this money abroad because one of the other benefits of financial emigration is that it opens a free flow of capital for you.

What is financial emigration?

Financial emigration is the official process of informing the exchange control authority – the South African Reserve Bank – that you wish to wrap up your financial affairs in South Africa and change your status from “resident” to “non-resident” for exchange control purposes.

What happens when you change from resident to non-resident for exchange control purposes?

  • The South African Reserve Bank will apply a different set of rules to you when it comes to exchange control, which creates a free flow of capital.
  • This means that once you are a financial emigrant you’ll find it much easier to transfer assets from South Africa without prior approval (such as Tax Clearance Certificates) from an exchange control point of view.
  • The most important thing that happens when you become a financial emigrant? You become eligible to cash in your retirement annuity early.

What are the benefits of financial emigration

Aside from being eligible for retirement annuity withdrawal on emigration, there are a number of other attractive benefits to becoming a financial emigrant:

  • Transferring South African funds abroad becomes less of a headache
  • You can cash in your retirement annuities/pension before maturity
  • Receiving your South African sourced future inheritances will be simpler

Is there a penalty for cashing in my retirement annuity policy before its contractual retirement date?

The penalty fee you’ll pay for early withdrawal depends on your RA provider and the product you chose. Penalty fees vary between 0 – 30%, but it is possible to check exactly what you’ll be charged before you have to make any decisions.

What are the taxes on early retirement annuity withdrawal?

It should come as no surprise that the South African Revenue Service is interested in any lump sum withdrawals you make from your retirement annuity. As a result, you will only be paid out the proceeds of your retirement annuity once SARS has had their cut of your pie. Pay careful attention to the tax that is payable when you access your RA as a lump sum, because the higher your lump sum value, the more tax you’ll have to pay because you fall into a higher tax bracket, according to the tax table that applies to retirement fund withdrawals.

Learn more about how retirement annuity lump sum withdrawals are taxed by SARS.

FinGlobal: cross-border financial specialists

Still got questions about how to access your retirement annuity before the age of 55? Need impartial advice on whether financial emigration is your best next move? Our team of financial migration planning experts are ready to listen and advise you every step of the way.

We provide premier cross-border financial services to South African expats – we’ve already helped more than 48,000 individuals with various aspects of their international portfolio requirements.

FinGlobal can assist you with the following:

  • Retirement annuity withdrawal
  • Tax clearance and refunds
  • Exiting the South African tax system
  • Foreign exchange transactions
  • Inheritance remittances
  • Pension income transfers

Let’s talk about your next steps in cashing in your retirement annuity. Let’s get started on stabilising your financial future today. Leave us your contact details, and we’ll be in touch.

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