South Africans face three-year wait post-emigration to access retirement annuity savings in full

Many South Africans who have settled overseas for good want to tidy up their finances and move their South African retirement funds offshore. But the introduction of the two-pot retirement system in South Africa has left many expats unsure about what they can actually withdraw — and when.

While the new system does allow limited access to a portion of your savings, it doesn’t mean you can immediately cash out your retirement annuity in South Africa. In reality, full access before age 55 still depends on meeting SARS’ non-residency requirements. For expats with no plans to return, the smartest approach is usually to wait out the 3-year rule and then withdraw the full value of the retirement annuity in one lump sum.

Top three takeaways for expats on retirement annuity withdrawal

1. The two-pot system offers limited early access to retirement savings. Under the two pot retirement system, only the savings component can be accessed once per tax year. The retirement component and vested component remain locked.
2. Full access requires confirmed non-residency for three years. To qualify for a full withdrawal of retirement annuity before 55, you must complete tax emigration and remain non-resident for three consecutive years.
3. Full retirement annuity withdrawal is usually the better option for permanent emigrants. If you’ve left South Africa permanently, waiting to meet the three-year rule and withdrawing your entire retirement annuity in one lump sum is typically more effective than making small annual withdrawals under the two pots system.

Read more: Expats and the two-pot retirement system – what are your withdrawal options?

How does the two pot retirement system work?

Simply explained, the two pot retirement system is designed to balance short-term financial flexibility with long-term retirement preservation. From 1 September 2024, contributions to most retirement funds in South Africa are divided into three components:

• Savings component: One-third of contributions made after September 2024. This can be accessed once per tax year, subject to a minimum withdrawal of R2 000.
• Retirement component: Two-thirds of new contributions. This portion is preserved until retirement, usually age 55.
• Vested component: All savings accumulated before 1 September 2024. These remain subject to the old pension fund rules in South Africa.

The two-pot retirement system rules apply to retirement annuities, pension funds and provident funds, but the access rules differ depending on your residency status.

Read more: Navigating the new horizon: South Africa’s two pot retirement system and what it means for you abroad.

Two pot system withdrawal: What expats can access before three years

If you’ve emigrated but have not yet met the three year rule, your withdrawal options are limited. You may make a two-pot system withdrawal from the savings component once per tax year, provided the withdrawal is at least R2,000. However, these withdrawals:

• Are taxed at your marginal income tax rate
• May increase your annual tax on retirement annuity South Africa
• Do not provide access to the retirement component or vested pot

For most expats, the savings component represents a relatively small portion of their total retirement value. As a result, annual withdrawals under the two pot pension system often provide limited financial benefit while increasing administrative complexity and tax exposure.

The three-year rule: The key to full RA withdrawal access

The most important access factor for expats is the three year rule. To qualify for a retirement annuity withdrawal before 55 in South Africa, you must:

• Complete the tax emigration process and become a non-resident for tax purposes
• Remain non-resident for three consecutive years.

Once these requirements are met, you can withdraw the full value of your retirement annuity in a single lump sum. This includes the savings, retirement and vested component. At this point, the structure created by the two pot retirement framework no longer limits your access.

For expats who have permanently settled abroad, this once-off withdrawal is typically far more useful than partial annual access.

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

How to withdraw your full retirement annuity after emigration

Once you’ve met the three-year non-residency requirement, you’re ready to access your full retirement annuity value in South Africa. Here’s how the withdrawal process works:

1. Confirm your eligibility – Make sure you’ve completed tax emigration and can prove three consecutive years of non-residency.
2. Submit your withdrawal request to your fund – Contact your retirement annuity provider (Old Mutual, Sanlam, Momentum, etc.) and let them know you want to withdraw the full balance. They’ll provide the required forms and guide you through the process.
3. Provide supporting documents – Your provider will ask for documents to verify your non-resident status and confirm your identity.
4. Tax compliance check – Ensure you have a SARS Tax Compliance Status (TCS) PIN, confirming your tax obligations in South Africa are up to date.
5. Fund disbursement – Once your provider processes your application and confirms tax compliance, the full amount can be paid out to you.

Once approved, your funds can be withdrawn and transferred offshore. You will need a South African bank account for this.

Tax on pension withdrawal in South Africa

When it comes to withdrawing your retirement annuity in South Africa, tax is a key consideration. For expats who have met the three-year non-residency rule and are making a once-off full withdrawal, here’s how it works:

• Lump sum withdrawals are taxed separately from your regular income. They follow the retirement lump sum tax tables, not the normal income tax brackets. This means your withdrawal won’t “push you into a higher tax bracket” like salary income would.
• Savings component withdrawals made before meeting the three-year rule are taxed at your marginal income tax rate, which can increase your annual tax liability if you’re still a SA tax resident.
• Full withdrawal after emigration is generally simpler: the fund calculates tax using the SA retirement lump sum tables, and the amount is withheld before the funds are released to you.

After receiving your funds, you should also check the tax rules in your country of residence to understand any local obligations, but this is separate from how South Africa taxes the withdrawal.

In other words, for most expats, waiting to meet the three year rule and doing a single lump sum withdrawal is often simpler and more tax-efficient than making multiple partial withdrawals under the two pots system.

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

De minimis rule: The small-balance exception

There is a limited exception to the preservation rules. If your retirement annuity is worth less than R15,000, the de minimus rule allows for a full withdrawal without waiting for retirement or meeting the three-year non-residency requirement. However, this applies only to small balances and is unlikely to assist most expats with meaningful retirement savings repatriation.

Why full withdrawal usually makes more sense for expats

While the two pots system introduces immediate flexibility, it is not designed to provide meaningful early access for people who have permanently emigrated.

For long-term non-residents, annual savings withdrawals:

• Provide limited access to total retirement value
• Increase administrative and tax complexity
• Do little to simplify cross-border financial planning

In contrast, waiting to meet the three year rule allows you to:

• Access your entire retirement annuity in one transaction
• Consolidate your finances in your country of residence
• Move funds offshore and manage your retirement in a single jurisdiction
• Avoid repeated withdrawals and annual tax events

If your future no longer includes retiring in South Africa, a once-off retirement annuity cash out is often the more practical and efficient solution.

Read more: Retirement annuity payouts abroad: avoid these common mistakes.

FinGlobal: Retirement annuity encashment specialists for expats

Accessing your South African retirement annuity after emigration involves understanding complex tax rules, jumping through hoops for SARS approval and meeting cross-border transfer requirements.

FinGlobal specialises in helping expats abroad with the full end-to-end process of South African retirement annuity encashment. From confirming your non-resident tax status and managing your AIT application to handling tax compliance and international money transfers,

FinGlobal provides comprehensive support to ensure your funds are released quickly, compliantly and cost-effectively.

If you’ve already met the three year rule — or want to plan ahead for a full withdrawal of retirement annuity at a future date — contact FinGlobal today.