If you’re a South African expat, you’ve probably got more than one loose end left back home – especially when it comes to your retirement savings. Whether we’re talking retirement annuities in South Africa or pension funds and provident funds, the rules around accessing your money can get complicated once you’ve left the country. One term that often pops up in this context is “policy surrender.” But what does it mean, and how does it fit into your long-term financial planning as a non-resident of South Africa?

If this is you, buckle up. Let’s unpack what a policy surrender is, how it works, and why expats should carefully consider the tax implications before cashing in.

First, let’s start by understanding retirement policy surrenders.

What is a policy surrender? A policy surrender is when you cash in your South African retirement policy before it matures. Your ability to do this depends on the type of fund, your age, and the value of the investment.

When surrenders may apply:

Accessing your retirement policy in South Africa before retirement is generally limited, but there are some situations where a policy surrender is possible:

• Preservation funds: These are designed to preserve your savings until retirement. Early withdrawals are normally not allowed, except in special circumstances such as severe ill health or, in some cases, very small fund balances. Preservation funds follow the same rules as retirement annuities in South Africa in terms of tax treatment, but they are still subject to withdrawal restrictions.
• Retirement annuities in South Africa: You generally cannot surrender your RA before the retirement age of 55. Exceptions exist for:
  – Policies with very small balances (typically under R15,000)
  – Severe ill health that prevents you from continuing to work

Even when eligible, any payout is subject to tax on retirement annuity withdrawal in South Africa, calculated using the retirement lump sum tax tables. Suppose you are an expat and want to transfer your South African retirement annuity fund abroad. In that case you will also need to complete tax emigration and obtain an Approval for International Transfer (SARS AIT) from SARS.

The process of surrendering a policy:

Accessing your retirement savings in this way usually involves several steps:

1. Assessment of eligibility – Your investment type, age, and value are reviewed to determine whether surrender is possible.
2. Preparation of documents – You’ll need to complete forms and provide supporting documents, such as proof of identity and residency status.
3. Submission to providers – The surrender request is lodged with the insurer or fund administrator, along with any required SARS (South African Revenue Service) clearances.
4. Transfer of funds – Once approved, your money is paid into your nominated bank account, either in South Africa or abroad (if authorised for transfer).

Is it possible to access my retirement funds early, before 55?

Many expats want to know how they can tap into their retirement savings before the age of 55. The rules differ depending on your fund type:

• Retirement annuities: If the total value is below R15 000, you can withdraw the full amount early. Serious ill-health may also qualify you for early access, subject to medical evidence.
• At retirement (age 55+):
  – Provident or preservation funds: You can usually withdraw the full balance as a lump sum.
  – Retirement annuities or pension preservation funds: You may withdraw up to one-third in cash, with the remainder used to buy a living or life annuity.

Tax emigration is key to unlocking the full value of your retirement funds from abroad.

If you’ve permanently left South Africa and want to access your retirement savings, you’ll need to complete tax emigration. This is the formal process of changing your status with SARS from tax resident to non-resident, and it’s the only way to ensure your funds can be legally and efficiently transferred abroad.

Here’s how the process works:

1. Tax residency assessment: First, SARS will assess whether you still meet the requirements to be considered a South African tax resident. If not, you can apply to change your status to non-resident.
2. Non-Resident Confirmation Letter: Once your status has changed, SARS issues a Non-Resident Confirmation Letter. This is a critical piece of paperwork, as it serves as proof of your non-resident status and is required when you later apply for approval to transfer funds abroad.
3. Approval for International Transfer (AIT): With your confirmation letter in hand, you’ll then apply for an Approval for International Transfer (AIT) from SARS. This step ensures that your tax affairs are fully up to date and compliant before any money leaves the country.
4. Banking setup and withdrawal: A designated South African bank account must be in place to receive your retirement savings. Once SARS grants the AIT, your fund provider can release the money (less lump sum tax and administrative fees and penalties), which is then transferred into your local account, after which you can move it offshore.

By following this process, you ensure that your retirement savings are released smoothly, moved abroad legally, and in compliance with both South African and international tax regulations.

Legislative changes for expats to be aware of when accessing retirement funds from abroad:

The 2021 Tax Laws Amendment Act introduced a new requirement. Before withdrawing your retirement funds after emigrating, you must be able to prove you have been a non-resident for tax purposes for at least three consecutive years.

How the three-year rule really works for expats

The three-year rule affects South African expats who want to access their retirement annuity or preservation fund savings after leaving the country. According to this rule, once you have formally ceased being a South African tax resident, you must remain a non-resident for tax purposes for three uninterrupted years before you can withdraw these funds.

What this means in practice

1. Complete tax emigration first: You must formally cease your tax residency with SARS, which usually starts by applying eFiling. This must be supported by the necessary documents, including proof of residence abroad, travel records, and financial information.
2. The three-year clock can be backdated: SARS determines the official date you ceased being a tax resident. If you left South Africa several years ago, your non-resident status can often be backdated to your departure date. This means you may already meet the three-year requirement and could be eligible to withdraw your funds immediately once tax emigration is finalised.
3. It only applies to certain fund types: The rule affects retirement annuities and preservation funds in South Africa. Pension funds and provident funds are generally not subject to the three-year waiting period and can usually be accessed without delay once you’ve completed the tax emigration process.

Why this matters for expats

Understanding the rules ensures your financial planning abroad accounts for any delays in accessing retirement savings. If you’ve been living outside South Africa for more than three years, you may qualify for immediate access, but only after SARS officially finalises your tax emigration. For preservation funds and retirement annuities, the full benefit becomes accessible once the three-year threshold is met, subject to any applicable lump sum tax.

Don’t forget the tax implications of your RA withdrawal.

Withdrawals are subject to South African tax, which SARS calculates according to the applicable retirement lump sum tax table. The amount depends on how much you withdraw and whether you have taken previous lump sums, and this tax is deducted before your funds are paid out to you.

Read more: Tax on retirement annuity withdrawal in SA – what expats need to know.

FinGlobal: RA withdrawal specialists for South African expats

If you’ve emigrated from South Africa, your retirement annuity doesn’t have to stay behind. Whether you’re under 55 and looking to make an early withdrawal from a retirement annuity in South Africa, or you’re over 55 and planning tax-efficient income paid out through a living annuity in South Africa, the right guidance can make all the difference.

FinGlobal is ready to assist. From tax emigration to securing SARS AIT approval, managing retirement annuity fund withdrawal paperwork and international fund transfers, our expert support ensures your every step is seamless and compliant.

To get started with FinGlobal’s trusted, convenient services for expats, leave your contact details in the form below, and we’ll be in touch to find out how we can assist.