Retirement annuities are a popular retirement planning option in South Africa. According to the South African Reserve Bank, assets in retirement annuities totaled R2.9 trillion at the end of June 2023. Given that this equates to roughly 50% of our country’s GDP, South Africans are understandably reluctant to leave their RAs behind when relocating permanently to other countries. Whether you are a South African living abroad already, or you’re still plotting your emigration, it’s important to factor your retirement annuity savings into your planning – after all, it’s your hard-earned money.
With this in mind, let’s take a quick look at how retirement annuities work in South Africa, what the rules are regarding early withdrawals, as well as what happens to your retirement annuity savings when you emigrate.
How does a retirement annuity work in South Africa?
A retirement annuity is a means for you to save up during your working years in order for you to have an income once you have clocked out of the rat race at the end of your career.
- Your contributions are tax deductible, which allows you to reduce your taxable income. You can contribute up to 27.5% of your annual taxable income or R350,000 per annum, whichever is lower.
- The growth on your investment in a retirement annuity is tax-free. This means that your savings have the potential to grow faster than in a taxable investment account.
- Retirement annuities are protected from creditors. This means that your retirement savings cannot be seized to pay off debts.
Can I cash in my retirement annuity early in South Africa?
Generally speaking, you are not permitted to cash in your retirement annuity before the age of 55, which is the age at which you become eligible to exercise your retirement benefit. There are a handful of exceptions but the purpose of these strict retirement annuity withdrawal rules is to ensure that you are adequately prepared for your post-career years, from a financial perspective.
Retirement annuity payout options in South Africa
Once you become eligible to exercise your retirement option, here’s what you need to know:
Irrespective of whether you live in South Africa or abroad –
- You can access and withdraw your retirement annuity in full if the value is lower than R15 000.
- If the value is lower than R247 500, you can withdraw your retirement annuity in full, subject to lump sum tax.
- If you have more than one RA with the same fund manager, and the combined value exceeds R247 500, you will not be allowed to surrender the funds in full.
If you are a South African living abroad –
- Where you have RAs with a collective value of more than R247 500, these funds will be locked in until you have ceased your tax residency and maintained non-resident status for a minimum of three years.
- Once you have become a non-resident for tax purposes (via tax emigration) and you can show that you have been a non-resident for three years, you will be permitted to access and withdraw the full value of your RA fund(s), regardless of your age and the fund value.
What happens to my retirement annuity after I emigrate?
If you have already retired:
- If you are already drawing a pension income from your retirement savings, you will need to continue to do so, even from abroad. This is because the capital underlying your retirement annuity savings cannot be transferred to another country.
- You will need to maintain a South African non-resident bank account, through which your pension income can be remitted abroad for your use.
If you have not yet retired:
- You will become eligible to cash in your retirement annuity early (before the age of 55) and in full (subject to tax and fund penalties) once you have undergone the process of tax emigration through the South African Reserve Bank.
Once SARS has noted your change in tax status from resident to non-resident, you will need to maintain this status for at least three years before you can withdraw your retirement annuity funds.
- After you have settled the lump sum withdrawal tax (and any early withdrawal penalties your fund might have in place) the remainder of your retirement savings will be paid out into a non-resident bank account in South Africa, from where you can transfer it abroad.
- Once you have cashed your retirement annuity in this way, you are free to do with your savings as you please. You are not obligated to reinvest in retirement savings vehicles in your new country of residence.
If you are already living abroad but have not cashed in your retirement annuity:
- You will need to complete the process of tax emigration with SARS in order to become eligible to withdraw your RA savings in full.
This is the case even if you moved abroad a number of years ago (and you completed formal emigration through the South African Reserve Bank) as most fund managers now require a SARS Non-Resident Confirmation Letter in order to process the tax directive that must be filed before you can withdraw your funds.
- The good news is that the date upon which you ceased tax residency is the actual date that you permanently left South Africa, which means that you will not need to begin the three-year lock-in period anew. If you left South Africa more than three years ago, you will more than likely be able to cash in your retirement annuity immediately, provided you have all your paperwork in order and your tax affairs are up to date.
A step-by-step guide to ceasing tax residency and becoming a non-resident for tax purposes in South Africa.
Three misconceptions about the three-year rule on Retirement Annuity withdrawals for South African expats.
FinGlobal: retirement annuity withdrawal specialists
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