By now, like most people, you probably already know that retirement annuities are one of the most tax efficient ways to save for your golden years. You probably also know that planning for your retirement is one of the most important things you can do during your working years. There are, however, likely to be a few things that you’re not aware of when it comes to your retirement funds, particularly in relation to your emigration from South Africa. So let’s take a look at what you’ll need to know about your South African retirement annuity funds, your retirement, and your emigration and the timing thereof.
What you need to know about retirement annuities in South Africa:
1. As a South African tax resident you cannot access your retirement annuity funds before the age of 55.
The rules around retirement annuities and pension funds are strict for a reason. They’re intended to safeguard your retirement savings and prevent you from dipping into them in an emergency, which could compromise your ability to provide for yourself through retirement. As such, the general rule is that if you are still living in South Africa, you can only access your withdrawal benefit from your retirement annuity once you reach the age of 55, or in a handful of limited exceptions that relate to illness and disability.
- Taxing matters: a guide to understanding South African tax residency for expats.
- Early access to your South African pension fund – yes or no?
2. You can only make an early withdrawal from your retirement annuity once you become a non-resident for tax purposes.
Once you cease your tax residency with SARS after you have permanently emigrated from South Africa, you become eligible to cash in your retirement annuity in full. This means you will have to complete tax emigration through SARS after you have left the country, and will need to have your tax status changed from resident to non-resident.
However, you will not be able to access your retirement annuity funds immediately after becoming a non-resident for tax purposes. You will need to maintain your non-resident status for three years (counted from the date of your departure) before you will be allowed to cash in your South African retirement annuity early.
- A step-by-step guide to ceasing tax residency and becoming a non-resident for tax purposes in South Africa.
- South African Retirement Annuities: what you can do with them before and after emigration?
3. The three-year lock-in rule only applies to certain retirement funds.
Despite the fact that the rule makes reference to retirement funds, it is only preservation funds and retirement annuities (RAs) that are actually affected, and it does not apply to pension funds. In terms of preservation funds and provident preservation funds, even if you have used your once-off pre-retirement withdrawal benefit, you may still access and withdraw the remainder in full (less penalties and lump sum tax to SARS) after being non-resident for three years.
- Three misconceptions about the three-year rule on Retirement Annuity withdrawals for South African expats.
4. You will be taxed on your withdrawal from your retirement annuity fund.
Retirement is a major tax event for SARS, given that you’ve benefited from many tax breaks while you were saving from retirement. As such, the withdrawal benefit is taxed according to the retirement lump sum tax table. If you are already drawing a pension income after you have retired, this income is also taxable as it is paid out in South Africa.
5. You are not obliged to invest the proceeds in another retirement fund after you transfer the proceeds abroad.
Once you have your hands on the money from your South African retirement annuity fund, there is no rule that says you have to put it into another savings vehicle in your new home country for your retirement. As such, you can use your money for any other purpose – travel, furthering your education, building your dream home – the possibilities are endless!
6. You cannot cash in your retirement annuity or pension fund in South Africa if you have already retired and are already drawing an income.
Becoming a non-resident does not make you eligible to withdraw your retirement annuity or pension fund if you have already officially retired, and you are already receiving a pension income in South Africa. This is because there is no portability when it comes to your retirement savings. Your retirement fund will only pay out your pension income into a local bank account in South Africa. Once the funds have cleared in your South African bank account, you will then need to make an international transfer to receive this money.
The process for transferring retirement annuity funds offshore has changed. You will now need to make an application to SARS for Approval – International Transfer.
If the pay-out from your retirement annuity withdrawal or the amount of your pension income that you regularly need to transfer out of South Africa exceeds the Single Discretionary Allowance exchange control limit, you will need to get prior tax clearance from SARS before you will be allowed to make an international transfer.
- Transferring money out of South Africa – the Single Discretionary Allowance vs the Foreign Capital Allowance.
- Breaking News – SARS implements new Tax Compliance Status process: what you need to know.
- What supporting documents does SARS require with the Approval of International Transfers (AIT) application?
FinGlobal: retirement annuity encashment specialists for South African expats
Withdrawing your South African retirement annuity once you’ve emigrated can be a frustrating and time-consuming experience. FinGlobal is here to take the friction and headache out of getting your hands on your money. From tax clearance, to tax emigration and surrendering your policies, we’re here to help you every step of the way to ensure a seamless, hassle-free experience as you transition your finances from South Africa to your new home abroad.
For more information on our convenient cross-border financial services, leave your contact details below, and one of our experienced consultants will be in touch to discuss your requirements.