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Emigration after retirement: Can you still cash in your Retirement Annuity?

By February 16, 2022September 28th, 2023FinGlobal

Emigration after retirement: Can you still cash in your Retirement Annuity?

February 16, 2022

While age is usually just a number and has little to do with how you feel or live your life, when it comes to emigrating abroad and cashing in your retirement annuity, age is everything. Here’s what you need to know about relocating overseas, your age, and your retirement.

Emigration after retirement

If you are under the age of 55 and you want to emigrate

Now is the best time to do it. Once you have relocated overseas, you will need to cease South African tax residency if you want to cash in your retirement annuity. You will need to maintain this position for at least three years before you’ll be able to cash in your retirement annuity.

If you’re over the age of 55 and you want to emigrate

You’ll need to do a little extra financial planning before you move, particularly if:

  • You already receive South African pension income as a result of retiring from some, or all of your retirement funds. In so doing you would have used  at least two-thirds of your retirement annuity funds to purchase a living/life annuity, which funds your retirement by paying out a pension income.
  • You are the beneficiary of inherited pension income streams or you are considering leaving a portion of your funds behind as retirement income for the purposes of funding return trips to South Africa for holidays or to visit family.

Can I take my pension out of South Africa?

If you’ve already retired, you will not be able to take your pension out of South Africa. This is because there is no transferability or transportability when it comes to South African pension income. It’s not something you can pack in your bag and take with you, so if you’re already receiving income from a pension or retirement annuity, you will still need to receive your pension income into a South African bank account, and from there you can access your money through an international transfer if you emigrate.

Three things to note about pensions in South Africa

  1. The capital used to fund pensions is not accessible (even if you complete tax emigration) and must remain in South Africa until the pension recipient passes away and the pension income ceases to exist.
  2. Pension income is payable only in South Africa but once it has been paid into a local non-resident account, you can then transfer your money offshore.
  3. Pension income is subject to tax in South Africa because it is locally-sourced income and may also be subject to tax in the country to which you relocate.

Pension income and double taxation agreements – tax relief vs tax refunds

If you are a tax resident in another country as well as in South Africa,  you will be taxed on your worldwide income which includes pension that is paid out in South Africa. Regardless of tax residency, most periodic annuities and pensions are taxed in full in SA first which means you’ll need to include the income in your South African tax return, as well as the return you file in your new country of residence. Being taxed on your pension income twice seems unfair, but to avoid such a situation, South Africa is a party to many Double Taxation Agreements (DTA) to eliminate or at least mitigate double taxation.

To qualify for tax relief back in SA: If there is a DTA in play you could be eligible for tax relief in South Africa, resulting in the annuity or pension income being taxable only in your new country of residence. You must apply to the South African Revenue Service using an RST01 application, which is an application by a tax non-resident for a directive for relief from South African tax for pension and annuity income, in terms of a Double Taxation Agreement. This application must be renewed annually.

To qualify for a refund on tax already paid in SA: If you’ve already paid tax on your South African annuity and pension income because fund administrators usually withhold Pay as You Earn (PAYE) before paying out income, you are eligible to submit an RST02 to SARS, which is an application made in terms of a Double Taxation Agreement by a tax non-resident for a refund of South African tax for pension and annuity income.

FinGlobal: tax specialists for global retirees

The last thing you should be worrying about in your retirement years is the headache that comes with tax. That’s where FinGlobal can make a difference to your stress levels. Whether it’s tax relief or a tax refund, or you need someone to handle the international transfer of your pension income, or to open a non-resident bank account for you, consider it sorted.

To get started on making your international money moves, leave your contact details and we’ll be in touch to see how we can make your retired life easier.

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