If you’re a South African living overseas, it’s more than likely that your retirement annuity is one of the things you left behind when you relocated. You might now find yourself wondering what you can do with these savings – can you cash in your South African retirement annuities? The answer to this question depends on your age, how long you’ve been living abroad and whether or not you intend to return to South Africa at some point in the future.
Let’s take a look at the options for South African expats and their retirement annuities.
South African retirement annuity rules: untouchable
Because the goal of a retirement annuity is to ensure that you have saved sufficient funds to get you through your retirement years, the general rule is that you cannot cash in your retirement annuity before the age of 55. There are a handful of exceptions to this legislative rule, but for the most part, your retirement annuity is untouchable.
Even when you reach retirement age, access to your savings as cash is limited. You are allowed to take one-third of your savings as a cash lump sum payout but the rest you must use to purchase an annuity that will pay out a regular pension for your golden years.
One of the major exceptions to the rule is that an individual may access their retirement withdrawal benefit when they cease to be a tax resident of South Africa, and they have maintained this non-resident status for a minimum of three years. This three-year waiting period is to prevent South Africans from moving abroad temporarily and using their relocation as a means to prematurely cash in their retirement savings.
The rules now state that anyone who wishes to access their retirement annuity may do so only 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
- They have financially emigrated from South Africa and the emigration was recognised by the South African Reserve Bank prior to 1 March 2022.
So what are your options when it comes to your retirement annuity, as a South African living abroad?
Before the age of 55:
- In theory, you break your tax residency the day you physically leave South Africa to relocate abroad permanently.
- This means that you will have to wait three years from the date you boarded the plane, before you can access your retirement annuity.
- At this point you can encash the full value of the fund – you are not obliged to use any portion of it to purchase an annuity.
- Once you’ve paid tax on your retirement annuity lump sum payout, and any administrative penalties, you are free to transfer your money out of South Africa, to use as you see fit.
After the age of 55:
- If you relocate abroad after the age of 55, waiting three years and then cashing in your retirement savings is not going to be an option for you.
- The only exception is where the amount available is less than R247 500, then the full amount can be withdrawn subject to tax.
- You are restricted to taking one-third of your savings as cash, subject to tax and the other two thirds must be invested in an annuity to provide a regular income.
- This income must be paid out into a South African non-resident bank account, after which you can move this money offshore as needed.
- To reduce the number of international transfers you have to make (and to save on forex and banking fees) it’s advisable to set your pension payout interval either annually, bi-annually or quarterly, instead of monthly.
- Don’t forget that even if you cease South African tax residency, you will still be taxed on your annuity income as this is considered income that is sourced in SA.
Is there a penalty for early withdrawal of your retirement annuity?
Everything in life comes at a price, and early access to your retirement annuity is no exception. Early withdrawal will be subject to tax on top of any
penalties or administrative fees that your specific fund provider may have in place.
That’s not the end of it, however, as ceasing tax residency (that thing you need to do before you can access your retirement annuity early) may trigger a deemed capital gains tax liability.
FinGlobal: tax emigration and retirement annuity encashment specialists
If you’re a South African permanently living abroad and you need a hand sorting out your tax emigration, FinGlobal can help. We’ll help you straighten out your tax affairs, and get your retirement annuity funds where you need them to be.
Leave us your contact details and we’ll be in touch to discuss.