Retirement planning is a big deal but often, when we start saving, retirement is still a vague milestone in the distant future. So much can change in the time between signing up for a retirement annuity, making your first pension fund contribution and the day you decide to retire. Maybe your plan was originally to retire in South Africa, surrounded by cats, but that’s now a distant memory and you live abroad. So what do you do when the plan changes? What do you need to know about stepping into this next exciting phase of your life? What happens to your retirement funds when you emigrate? What are your options?
Retirement annuities and emigration from South Africa
Let’s take a look at a common scenario. James says he moved to the US in 1998 but kept his South African citizenship. He still pays taxes in South Africa and has a South African retirement annuity. He want to know:
- Tax implications: What are the taxes if he brings his RA to the US?
- Investment: Are South African annuities a good idea for me, living in the US?
Given the situation, it might be best for James to withdraw his entire South African retirement annuity instead of buying a living or a life annuity.
Why not an annuity? They provide limited flexibility. Once James puts money into an annuity, he can’t easily get it back as a lump sum. He’ll also pay South African taxes on the annuity payouts, which means further tax obligations to SARS for the rest of his life. The solution is to terminate his tax residency through tax emigration. In becoming a non-resident for tax purposes, James becomes eligible to withdraw the full value of his retirement savings and avoid the need to purchase an annuity in South Africa.
However, the tax emigration and withdrawal option also has implications. James will pay South African lump sum taxes on the money he withdraws from his retirement funds, but the Double Tax Agreement between South Africa and the US can possibly reduce his tax burden. Tax emigration can also trigger a deemed disposal of his worldwide assets, known as exit tax, which also needs to be considered. However, given that pension funds and retirement annuities have no portability between countries, this is the cleanest choice for James to make.
Read more:
- Maximising your retirement savings – exploring the option of transferring a South African pension fund abroad.
- Retirement annuities and pension income – what South African expats need to know.
Can you withdraw your full pension/retirement annuity/provident fund after moving overseas? Yes. Provided you have met all of the requirements, you can. However, there are important tax implications to consider.
- Over 55: You can withdraw up to R550,000 tax-free in certain cases. Any amount above that is taxable.
- Under 55: You can withdraw up to R27,500 tax-free. Any amount above that is taxable.
Read more: The facts on emigration and withdrawing from your retirement annuity before and after 55.
Withdrawing your retirement annuity after emigration
If you’ve permanently relocated from South Africa and completed the tax emigration process, you can access the withdrawal benefit for the full value of your retirement annuity before turning 55, less tax and any early penalties.
Here’s how it works:
- You must maintain non-resident tax status for three consecutive years.
- You’ll need to pay South African taxes on the withdrawal and potentially any early withdrawal penalties.
- Once you meet these requirements, you can withdraw the total value of your retirement annuity and transfer your money out of South Africa.
Why consider transferring your funds abroad?
There are a number of benefits to transferring your retirement annuity proceeds overseas:
- Currency diversification: Protect your savings from Rand volatility.
- Global investment opportunities: Access a wider range of investment options outside of South Africa.
- Potential tax benefits: Depending on your new country of residence, you may benefit from favorable tax treatments.
FinGlobal: retirement annuity encashment specialists
Don’t let your retirement savings be left behind. If you’ve relocated overseas, we can help you with an early RA withdrawal: whether you’re over or under 55, we can assist with withdrawing your entire retirement annuity in South Africa and transferring the funds abroad, after tax emigration.
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