Planning to relocate from South Africa? Emigration can mark the start of a thrilling chapter for you, but amidst the whirlwind of logistics – visas, travel arrangements, settling into a new home – your retirement funds in South Africa deserve your careful consideration. A common question we encounter at FinGlobal is: what happens to my retirement annuity (RA) when I emigrate? Understanding the impact of emigration on your South African Retirement Annuity is essential, and we’re here to provide clarity. So let’s break it down in a way that’s easy to understand.
Your retirement funds in SA – a quick recap of the facts
South Africa has a few ways to help you save for retirement. Think of them as vehicles – they might look a little different, but essentially they’re there to get you to your destination at the end of your working career and keep you moving once you’ve retired from the rat race.
- Retirement Annuity (RA): This is like a personal retirement savings plan. It’s not linked to your employment, so this is usually what you’ll choose if you’re self-employed, a freelancer, or an independent contractor. You contribute to it, get some nice tax breaks, and it’s designed to help you live comfortably after you stop working.
- Pension Funds: These are usually linked to your job. You and your employer both put money in (and get tax benefits out), and it grows over time.
- Provident Funds: Similar to pension funds, there are some differences in how you can access the money when you retire.
- Preservation Funds: A holding place for your retirement savings when you change jobs (and your money is no longer in a pension/provident fund), keeping your money invested until you decide what to do with it.
Read more:
- What’s the difference between a provident fund, pension fund and retirement annuity?
- Pension funds, provident funds & retirement annuities explained.
- Early access to your South African pension fund – yes or no?
The million-dollar question: can you cash in your retirement annuity before you emigrate?
This is the big one, right? Generally speaking, you cannot withdraw your retirement annuity before age 55, except for a handful of limited exceptions related to illness and disability. This means you cannot just cash out your retirement funds before you emigrate. There is, however, the two-pot retirement system that allows you to access a portion of your retirement savings before the age of 55, but that’s a discussion for another day.
Read more: The Two Pot Retirement System – what South Africans at home and abroad need to know.
The rules against early retirement annuity withdrawal are designed to encourage long-term saving for retirement, not to enable early access. Think of it this way: the government wants to make sure you have enough money to live on when you’re older, which is why the rules are pretty strict.
Can you withdraw your retirement annuity early, i.e.: before the age of 55?
Early access to your retirement annuity (before age 55) hinges on your tax residency status. In South Africa, “surrendering” an RA policy means terminating it and withdrawing the funds before retirement. Generally, this isn’t allowed except in specific cases of disability, illness, or death.
While residing in South Africa, you can only access your RA when you reach the official retirement age (typically 55). You can make your RA “paid up” (meaning you stop contributing), but you still can’t access that money until 55.
However, emigration offers a loophole to this rule. If you’ve permanently left South Africa and don’t plan to return, you can cease your tax residency. By completing the tax emigration process with SARS, your tax status changes from resident to non-resident. This change in status makes you eligible to surrender and withdraw your RA, even before reaching 55.
Read more: Tax emigration – how to become a non tax resident of South Africa.
Let’s be clear – “cashing in” your RA is not exactly what it sounds like
However, the phrase “cashing in” makes it sound like you can just walk away with a big pile of money. But it’s not that simple. Think of it as “accessing your retirement savings under specific conditions,” not just “cashing in.”
There are tax implications involved in accessing your retirement annuity before 55, and you might be subject to penalty or administrative fees, depending on your fund provider, but if the goal is getting your money out of South Africa, these are costs worth absorbing. You’ll be protecting your funds against the volatility of the Rand, which is peace of mind you can’t really put a price tag on.
So. Let’s ask this again: can you withdraw your retirement annuity before 55? Yes! After tax emigration, of course.
You can access your retirement annuity before the age of 55 if you’ve formally emigrated from South Africa for tax purposes. This is a critical distinction. It’s not just about physically leaving the country; you must also officially change your tax status with the South African Revenue Service (SARS) to “tax non-resident.” This involves an official tax emigration process which is overseen by the tax authority.
Bearing in mind the three-year lock-in rule for your retirement annuity funds
Once SARS has completed its investigation into your assertion that you no longer meet the requirements for tax residency, they will officially acknowledge your status change to non-resident for tax purposes. Thereafter, your retirement funds are subject to a three-year lock-in period, which means that you must maintain your non-resident status for a minimum of three consecutive years before you will become eligible to exercise your right of withdrawal.
How to withdraw your retirement annuity – what to know about taxes and transferring funds
After the three-year period, you can withdraw your retirement annuity. However, this withdrawal is still subject to tax. The lump-sum withdrawal tax will be calculated based on your individual circumstances and current tax laws. Any early withdrawal penalties imposed by your specific fund will also apply. The remaining amount, after taxes and penalties, will need to be paid into a non-resident bank account in South Africa. From there, you can transfer the funds abroad.
The good news – your original departure date counts for tax emigration
The date you ceased tax residency with SARS (which should align with your permanent departure from South Africa) is the starting point for the three-year lock-in period. So, if you’ve been living abroad for more than three years and have all your paperwork in order, you should be able to access your retirement annuity immediately after completing the tax emigration process with SARS. It’s vital to ensure your tax affairs are up to date.
Remember: Accessing your retirement annuity before 55 due to emigration is a multi-step process. It requires official tax emigration through SARS, adherence to the three-year rule, understanding the tax implications, and having the necessary documentation in place.
Read more: What to know before transferring policy proceeds and cash from South Africa.
The SARS Non-Resident Confirmation Letter – a must-have
Most fund managers now require a SARS Non-Resident Confirmation Letter before they process the tax directive needed for your withdrawal. This letter confirms your non-resident tax status and is a critical piece of documentation.
As such, if you left South Africa a number of years ago before tax emigration became a requirement, you’ll need to seek this document from SARS manually.
Read: How and why to obtain a SARS Non-Resident Tax Status Confirmation Letter.
What you do with your RA funds thereafter is your choice
Once you’ve received your retirement annuity payout, you’re free to use the funds as you see fit. There’s no obligation to reinvest the money in retirement savings vehicles in your new country of residence.
FinGlobal: retirement annuity encashment specialists
Stressing about your emigration and accessing your South African retirement annuity? FinGlobal is here to take that worry off your plate, with expert assistance to walk you through the entire process. From tax emigration to handling the surrender of your Retirement Annuity, and transferring the proceeds abroad, we’ll be with you every step of the way.
Want to know more about how we can make your retirement annuity withdrawal smooth and hassle-free? Just drop your details in the contact form below, and we’ll give you a call to discuss.