Since formal emigration has been phased out, the question we hear most often from people is: what happens to my South African retirement annuity when I emigrate? For those South Africans who want to know whether they can still cash in their retirement annuity, we take a look at changes made to the South African retirement annuity fund rules, as a result of legislative amendments that phased out formal emigration.

If you’re a South African who has relocated abroad permanently or you’re a future expat in the process of planning your international move, here are some of the most frequently asked questions around retirement annuities.

Cashing in your South African retirement annuity

What is a retirement annuity?

​​A retirement annuity (RA) is a retirement fund in terms of the Pension Funds Act that offers individuals a tax-effective means of preparing for their golden years. Contributions to a retirement annuity fund are tax deductible as an incentive to save.

An RA is suitable for individuals:

• Who are freelancers or self-employed
• Without access to a workplace pension or provident fund through an employer
• Who want to want to supplement their pension or provident fund savings
• Who earn significant amounts of non-pensionable income (such as interest or rental income).

When can I cash in my retirement annuity?

By law, the only time you can withdraw from your RA is when you retire from the fund. This is usually from the age of 55. Here, you will be permitted to withdraw a maximum of one-third of the investment as cash on retirement, subject to retirement tax tables. The remaining two-thirds you are obliged to invest in purchasing a living or life annuity that will provide a pension income for the remainder of your days. The only two exceptions to this rule are in the case of ill-health or disability. Formal emigration was previously used as a means for expats to cash in their RAs and transfer their savings abroad, after clearing tax and penalties – but this is no longer an option.

What happens to my retirement annuity when I emigrate?

The law now states that anyone who wishes to access their retirement annuity may only do so if:

• They have reached 55 years of age
• The fund value is less than R15 000
• They become permanently disabled
• They have been tax non-resident for three consecutive years

This tax non-residency status must have been maintained for a period of not less than three consecutive years before or after 1 March 2021 which means that the clock did not reset with these changes. If, for example, you were already technically a non-resident from 1 March  2018 to 1 March  2021 you will now qualify to withdraw your retirement annuity early as a lump sum.

This last part is the important change for South Africans who are thinking of leaving or who have already left the country.

If you want to access your retirement annuity early, and the other exceptions do not apply to you, the formal emigration process is no longer available to you. Instead, you must now cease South African tax residency and maintain this position for a period of at least three years. This process is now known as tax emigration.

How will tax emigration work for South Africans who want to leave the country after 2021?

Hypothetically speaking, if you decide tomorrow that you are going to leave South Africa and move to New Zealand on a permanent basis, you should in theory be able to break your South African tax residency the day you physically board the plane to leave the country. You would then have to wait for three years after this date to be able to access your retirement annuity, at which point you would be able to encash the full value of the fund, once you’ve paid withdrawal taxes and any administrative penalties.

The only time this is not the case is if you relocate abroad after the age of 55. The three year waiting period will not apply to you, and at this point you will be restricted to taking one third in cash subject to tax and two thirds would have to be invested in an annuity to provide a regular income. The only exception is where the amount available is less than R247 500, then the full amount can be withdrawn subject to tax.

Is there a penalty for withdrawing your retirement annuity before maturity date?

Early withdrawal of your retirement annuity will be subject to tax at a much higher rate than if you made the withdrawal after retirement, in addition to settling any penalties or administrative fees that your fund provider may have in place. Furthermore, let’s not forget that ceasing tax residency comes with a deemed capital gains tax liability which means that withdrawing retirement savings early isn’t always going to be the smartest financial decision, and you will have to weigh up the pros and cons before you make any decisions you might end up regretting.

Interested in reading more about changes currently in the pipelines for retirement annuity withdrawal rules? Here’s what you can expect from 2022 onward. (Hint: it’s nothing new or shocking!)

Need a hand sorting out your tax emigration? Don’t know where to start with the process of ceasing your tax residency? We’ll help you simplify your tax affairs and get your hands on your retirement annuity funds earlier. Leave us your contact details and we’ll be in touch to discuss.