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Retirement annuity policy surrender in South Africa: 3 important things for expats to understand

Retirement annuity policy surrender in South Africa: 3 important things for expats to understand

February 26, 2024


The idea of leaving South Africa permanently for a new adventure abroad is an exciting prospect. Yet, amidst the packing and planning, the reality of having to navigate the complexities of your finances sets in and this can feel daunting. One critical aspect of your planning that cannot be overlooked? Your retirement annuity policy. Surrendering your nest egg seems like it should be a straightforward solution, but for expats, there’s a lot to consider when it comes to withdrawing your retirement annuity early. This handy guide will help you to cut through the confusion by demystifying the intricacies of retirement annuity surrender in South Africa and equipping you with the three most important facts you’ll need to make informed decisions about your financial future.

So, grab a cup of rooibos, because we’re about to embark on a journey through the world of South African retirement annuities, ensuring you arrive at your destination with your financial security and your sanity intact.

#1 – Ceasing your tax residency is key to withdrawing your retirement annuity earlier than age 55.

In South Africa, surrendering a retirement annuity policy means terminating the policy before you reach retirement age and withdrawing the remaining funds. Under ordinary circumstances, it’s not permissible to withdraw your retirement annuity before its maturation date, except for a handful of circumstances that relate to disability, illness and death.

As long as you live in South Africa, you can only withdraw your retirement annuity once you reach official retirement age (usually 55). You could cancel your retirement annuity now and make it paid up, but even then, you’re only allowed to access this money at age 55.

The exception to this rule? Fits in with your emigration plans. Once you have permanently left the country with no intention to return, you qualify to cease your tax residency with South Africa. By completing tax emigration through the South African Revenue Service you undergo a status change from resident to non-resident for tax purposes. Once you have undergone this change, as a non-resident you become eligible to surrender and withdraw your retirement annuity.

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#2 – However, you can only withdraw your retirement annuity once you’ve been a non-resident for a minimum of three years.

Unfortunately, you’re not going to cash in your retirement annuity the minute you touch down in your new home country. You’re going to have to maintain your status as a non tax resident of South Africa after tax emigration for a minimum of three uninterrupted years before you become eligible to withdraw your retirement annuity savings.

Good news, if you’ve already left South Africa a number of years ago. After completing tax emigration, the date on which you ceased tax residency is counted as the day you physically departed South Africa, so you might not have to wait at all to withdraw your retirement annuity.

It’s important to note that the three-year lock-in rule only applies to preservation funds and retirement annuities. The exception to the rule is pension funds. You can cash in and withdraw your pension fund immediately after ceasing tax residency. However, when it comes to your preservation funds and provident preservation funds, even if you have already utilised your one pre-retirement right of withdrawal, you may still withdraw the remainder in full (less penalties and lump sum tax to SARS) once you have been a non-resident for three years.

Read more: Three misconceptions about the three-year rule on Retirement Annuity withdrawals for South African expats.

#3. Emigration is the way you will be able to withdraw the full value of your retirement annuity.

Under ordinary circumstances, when you reach retirement age and your policy matures, you cannot withdraw the full value of your retirement annuity as cash. According to the law, you can only take one-third as a cash withdrawal payment, the remaining two-thirds of your savings must be used to purchase a living/life annuity which will be used to pay out a regular pension income for your retirement years.

The exception to this rule? Yes, you guessed it. Fits in with your emigration plans. Upon ceasing tax residency in South Africa, you become eligible to cash in and withdraw the full value of your retirement annuity, without needing to re-invest it in any other vehicles to provide for your retirement. It is important to bear in mind that lump sum payments are a major attraction for SARS, and given that a tax directive (this tells your policy provider how your payout must be taxed) must be sought before your savings can be paid out to you, there’s no way to escape the long arm of the tax authority. Once you’ve cashed in and settled your tax liability with the South African Revenue Service, your money is free and clear for you to use as you choose, so choose wisely and use it to move with confidence into the next chapter of your life!

FinGlobal: retirement annuity withdrawals made easy

Handling every aspect of your financial transition to your new home country is not something you have to tackle on your own. FinGlobal is here to hold your hand and guide you every step of the way, to ensure that you get your money out of South Africa as quickly and cost-effectively as possible. We can help you with your retirement annuity withdrawal, tax emigration, international money transfers and more.

To put our secure, convenient cross-border financial services to the test, leave your contact details in the form below and we’ll be in touch to get you started.

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