Packing up your life to move abroad is a massive adventure, but it comes with a checklist of complex financial decisions. Whether you’re swapping a braai on the Highveld for the London fog or Sydney sunshine, managing your hard-earned money needs careful thought. One crucial step in this journey is deciding how to handle your South African retirement savings and understanding the process of tax emigration to ensure your wealth is protected and accessible as you start your new chapter overseas.
One of the most common questions we hear from South Africans on the move is: “Should I keep my retirement savings in SA, or move them offshore?” The answer isn’t a simple yes or no – it depends entirely on your financial goals, your tax status, and where you plan to spend your golden years.
The case for keeping your savings and retirement funds in South Africa
For some, leaving their retirement annuity in South Africa feels like the safer bet, at least initially. South African retirement funds have historically offered attractive returns compared to some developed markets, often outstripping inflation.
Additionally, if you aren’t permanently emigrating – perhaps you’re just working overseas for a few years with plans to return – keeping your pot growing in Rands might make sense. However, doing so means your growth is subject to local economic conditions and regulatory limits.
A closer look at Regulation 28 offshore limits
If you choose to leave your retirement savings in South Africa, your investment strategy is bound by Regulation 28 of the Pension Funds Act. This regulation is designed to protect investors from risky portfolios, but it can be restrictive for an expat.
Regulation 28 limits the percentage of your portfolio that can be exposed to certain asset classes. At present, Regulation 28 imposes a 45% cap on the amount of capital that funds can invest internationally. While this has improved in recent years, it still means that the majority of your nest egg is tied to the South African economy and the Rand.
If your living expenses are now in Dollars, Pounds, or Euros, having your future tied to the Rand exposes you to significant currency risk.
The benefits of moving your pension funds from South Africa
For many South African expats, the goal is to cash out your pension or retirement annuity and move the capital to their new home country. Transferring South African retirement annuity funds, allows you to consolidate your finances in one place.
Here is why many choose to move retirement funds offshore:
- Currency Matching: You match your assets with your liabilities. If you plan to retire in the UK, it makes sense to have a retirement pot denominated in Pounds.
- Global Investment Freedom: Once you withdraw your funds (subject to tax), you are no longer bound by Regulation 28. You can access a limitless range of offshore investment options, from tech stocks in the US to property funds in Europe.
- Protection from Volatility: An offshore investment account can protect your savings from emerging market volatility and Rand depreciation.
How to cash out and transfer your South African based funds
If you decide to transfer your pension, you need to be aware of the rules regarding retirement fund withdrawal.
Previously, you could access your Retirement Annuity (RA) immediately upon financial emigration. However, laws have changed. Now, to access your RA funds before the age of 55, you generally need to have ceased your South African tax residency for an uninterrupted period of three years.
Once you have cleared that hurdle (and obtained a tax clearance from SARS), you can cash out. However, remember that this withdrawal is subject to withdrawal tax tables in South Africa.
Types of offshore investment options
Once your funds are cleared and transferred, you have the world at your feet. Investing offshore as a South African expat opens doors to:
- Offshore retirement plans: Structured savings vehicles in your new country that may offer tax efficiency.
- Living annuity South African alternatives: Global income-generating funds that pay out in hard currency.
- Direct Equity Portfolios: Investing directly in global companies without the caps imposed by SA pension funds.
Retirement planning for expats: Navigating the next step in your journey
Whether you should cash out your pension or leave it is a personal calculation.
- Leave it if you plan to return to SA or want to take advantage of potentially high local interest rates.
- Move it if you want to eliminate currency risk, bypass Regulation 28, and consolidate your financial life in your new country.
Ultimately, you need to weigh the immediate tax hit of withdrawal against the long-term benefits of hard currency growth.
Your new life starts with strong financial foundations
Whether you need clarity on your remaining SA assets, help with tax emigration, or support with international money transfers, FinGlobal’s expert team is ready to guide you every step of the way. Let us handle the compliance and red tape while you focus on building your new life with confidence.
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