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Retirement annuities are fantastic long-term, tax-efficient savings vehicles designed to set you up for your golden years – but what happens if you no longer plan to retire in South Africa? What should you do if you’re living abroad with no intention of going home and you’re thinking about cashing in that retirement annuity that you left behind in South Africa? What are the rules around retirement annuity withdrawals and do you have any payout options from your retirement annuity, if you no longer live in South Africa?

Let’s take a look at what you need to know about the rules on withdrawing from your retirement annuity, including the maximum withdrawal amounts and tax implications.

How do you go about cashing in a retirement annuity from south africa?

Generally speaking, when it comes to retirement annuities they’re untouchable and cashing in early is not an option for South African residents who have very limited access to these funds before the age of 55. One of the handful of circumstances under which it is possible to cash in your retirement annuity early is through the process of financial emigration.

This means that by becoming a non-resident in South Africa for exchange control purposes (formalising your emigration, in other words) it then becomes possible for you to get your hands on your retirement annuity funds in full, less tax and administrative fees/penalty costs. Once you’re able to access these funds, you can then transfer them abroad under your foreign capital allowance.

What are the rules on retirement annuity withdrawal in South Africa?

The rules regarding retirement annuity withdrawals are contained in the Income Tax Act (58 of 1962). This piece of legislation envisages only two circumstances under which you be granted access to the full value of the retirement annuity before retiring for the purposes of withdrawing the funds:

  • Completion of the financial emigration process by a South African resident, in order for the South African Reserve Bank to note a change in your status for exchange control purposes to non-resident.
  • Formal expiration of a South African residency or employment visa that was used to gain access to the country.

Before the fund administrator is able to pay out the full fund value, it will be necessary for you to show that you can meet all the administrative requirements laid down by the South African Revenue Service (SARS).

What is financial emigration?

Financial emigration is the official process by which you inform the South African Reserve Bank that they should change the way they see you for exchange control purposes. It means that you will become a non-resident (for exchange control purposes), and that you will no longer be subject to the same exchange control rules as South African residents.

Read more:

What tax applies to retirement annuity withdrawals in South Africa?

Once you’ve met all your Fund’s requirements for withdrawal, you will be able to access the full value of your retirement annuity as a lump sum. Before you get excited and start planning how you’re going to spend it, it’s important to point out that the South African Revenue Service is due a cut of your cash before payout is possible.

How much tax can you expect to pay on your early retirement annuity withdrawal? The answer is calculated by applying a specific tax table relevant to lump sum retirement fund withdrawals, which is contained in the Second Schedule to the Income Tax Act. Brace yourself, because the larger the value of the lump sum, the higher the tax bracket and tax rate that is payable. 

Here’s what you’re likely to land up paying SARS before you can cash out, according to the following tax table:

Retirement annuity amountTax Rate
First R25 0000%
R25 000 – R660 00018% above R25 000
R660 001 – R990 000R114 300 + 27% above R660 000
R990 001+R203 400 + 36% above R990 000

Please bear in mind when looking at this tax table in relation to the lump sum amount you plan to withdraw from your retirement annuity, that the rule of aggregation applies. This rule is intended to discourage you from making withdrawals from your retirement annuity before maturity, and according to this rule, if you’ve already made any lump sum withdrawals from your retirement annuity, these will be added to the withdrawal under consideration which will push your transaction into a higher tax bracket. However, not all lump sum withdrawals count, so you’ll only need to consider:

  • Retirement lump sums received by you after 1 October 2007,
  • Withdrawal lump sums received by you after 1 March 2009,
  • Severance benefit lump sums received by you after 1 March 2011.

Any lump sums withdrawn and received by you before the above-mentioned dates will not need to be considered for aggregation.

Please also bear in mind that SARS maintains records of previous lump sum withdrawal receipts, so it’s critical that you ensure you have all the correct information so you know exactly what tax bracket you fall into in order to avoid a nasty surprise when it comes to tax payable on the lump sum withdrawn.

Read more about SARS’ approach to tax treatment of lump sums paid by retirement funds.

FinGlobal: ready to handle your retirement annuity encashment  back in South Africa

If you’re uncertain how to go about early withdrawal from your retirement annuity, we’re waiting to help you with impartial, expert advice and walk you through every step of the process. FinGlobal provides trusted premier cross-border financial services to South African expats all over the world. We’ve already provided more than 60 000 clients with the assistance they needed to start their next chapter, and we can’t wait to do the same for you.

Please get in touch if you need assistance with any of the following:

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

Why delay? Get started with your personal, no-obligation telephonic consultation to see exactly how FinGlobal can make your life easier. All you need to do is request a callback.

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