Retirement annuities are tax-efficient vehicles meant to help you save during your working years so that you can provide for yourself through the duration of your retirement years. As such, you’re legally not permitted to withdraw from your retirement annuity before the age of 55 which is the earliest age of official retirement. However, withdrawal from your South African retirement annuity is possible under certain circumstances, one of which includes the cessation of tax residency after emigration. The implications of your withdrawal thus depend on whether you’re over or under the age of 55.
Let’s take a look at the facts on post-emigration retirement annuity withdrawals before and after your 55th birthday.
What happens when you emigrate and cease your South African tax residency?
Once you have left South Africa permanently (with no intention to return), you become eligible to undertake the process of tax emigration in order to have your South African tax status changed from resident to non-resident at the South African Revenue Service (SARS).
Once you completed the process of tax emigration through SARS and you have received confirmation of your non-resident status, you become eligible to withdraw your retirement annuity at any age, as soon as you have been a tax non-resident for a minimum of three years.
Withdrawal rules: what options are available for accessing retirement annuity benefits prior to retirement or age 55?
Many individuals ask about the possibility of withdrawing benefits from their fund before reaching the age of 55.
Withdrawal from your retirement annuity before 55:
For a member of a preservation fund, it is permissible to make a single withdrawal from their benefit before reaching retirement age. This option applies if the benefit transferred into the preservation fund was acquired before reaching the normal retirement age in the transferring fund. Similarly, as a member of a retirement annuity fund, you have the opportunity to access your benefit before retirement if the total amount falls below the prescribed minimum, which is currently set at R15,000.
Once you have ceased South African tax residency and maintained this position for three years, you can withdraw in your retirement annuity in full. However, if you withdraw money from your retirement annuity (RA) before you reach the age of 55, your tax liability will be more penal than at retirement date.
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Withdrawal from your retirement annuity at age 55:
Once you reach the age of 55, you become eligible to access your retirement withdrawal benefit under ordinary circumstances. At this point, however, you are only permitted to draw one-third of your retirement benefit as a cash lump sum. The remainder must be used to purchase an annuity in South Africa, which provides a regular retirement income. The annuity you purchase will pay out a pension income (at a frequency of your choice) in South Africa, which you can then need to transfer abroad.
However, if the total benefit in the fund is equal to or less than R247,500 at retirement date you will have the option to withdraw the entire benefit as a lump sum, which you will be taxed on. Once you have paid this tax, you can transfer the full after tax proceeds abroad.
Withdrawal from your retirement annuity after age 55:
If you have emigrated and ceased tax residency after the age of 55, the implications are the same as above. Although you can withdraw one-third of your RA fund as cash without paying a penalty, you will be taxed on this lump sum payment and the rate of tax that you pay will depend on your marginal tax rate. Despite the fact you are a non-resident for tax purposes, you will still be obliged to use two-thirds of your savings to purchase an annuity that will pay a pension income during your retirement, as you have already passed the age of 55. Again, this annuity income will be paid out in South Africa and can be transferred abroad. This pension income is, of course, taxable.
FinGlobal: retirement annuity encashment specialists for South African expats
If you’ve relocated overseas, you don’t have to leave your retirement savings behind. If you’re below the age of 55, we can help you to make a full withdrawal from your retirement annuity and transfer the proceeds abroad (less tax and any possible penalties). If you’re over the age of 55, we can help advise you on the best way to structure your annuity income so that you make the most tax-efficient money moves to fund your retirement.
Interested in hearing more about how we can help? Leave us your contact details and one of our highly-skilled dedicated consultants will be in touch soon.