Okay, picture this: you’ve worked hard, and now, your retirement’s on the horizon. Maybe you’re even thinking, “Hey, why not spend my golden years somewhere new?” Many South Africans feel that way, and international retirement plans make sense. The kids are grown. The house is empty. Work has slowed down or stopped altogether. For these reasons, moving abroad at retirement can be a fresh start and an incredible adventure. But here’s the thing – before you get excited and start planning that farewell braai, we need to talk about your money, specifically your pension or retirement annuity in South Africa. Especially if you’re already getting regular life or living annuity payments, it’s not as simple as just packing up and going. There are rules for expat retirement, and we need to ensure you understand them so you don’t run into any nasty surprises later on. Let’s break it down and talk through some tips around offshore retirement for South Africans, shall we?
So, what’s the deal with retirement funds in South Africa?
All your working life, you’ve been saving diligently for when you stop working one day, and you’ve been doing this by contributing to a retirement fund. South Africa has a few different types, and they all work differently. One thing they all have in common? They’re tax strategies for retirement designed to ensure you have money coming in after you retire.
Read more: Six of the best countries for expats to retire to from South Africa.
When it comes to retirement planning, you’ve got options like:
- Pension Funds: These are often tied to your job. Your employer helps to put money in, and you might chip in too. It’s like a team effort to build your retirement nest egg. The government wants to encourage this, so there are generally tax breaks associated with contributing to a pension fund for you and your employer.
– When you hit retirement age, you can usually withdraw a third of your pension fund as a lump sum (you’ll pay tax on that), and the rest gets used to buy an annuity. An annuity is a product that provides your income during retirement, and that’s taxed, too. - Retirement Annuities (RAs): These are like pension funds, but you set them up yourself. You don’t need an employer because you put your money in, and you get the same kind of tax benefits as a pension fund.
– The same “one-third lump sum, two-thirds annuity” rule applies here. You can only access your funds at retirement age if you still live in South Africa and pay taxes.
– However, there is a loophole. If you permanently leave South Africa and cease to be a tax resident with SARS, you then become eligible after three years of non-residency to withdraw the full value of your RA, minus any taxes and potential early withdrawal fees. - Provident Funds: This is another type of retirement savings plan with different rules regarding how you can access the money at retirement.
Read more: What’s the difference between a provident fund, pension fund and retirement annuity?
Long story short? These funds are designed to give you a steady income when you’re done working. The rules relating to each are tricky, especially when taking the money out and what happens if you leave the country.
Read more: Retiring overseas – weighing the pros and cons for wealthy South Africans
The inside scoop on planning for retirement abroad
If an international move is on the cards for you, there are some essential things to think about regarding your retirement planning and pension income in South Africa:
Your existing pension payments: If you’re already receiving a regular income from a South African pension, it’s probably because you’ve used some of your retirement savings to buy a life or living annuity. This means you’re getting a steady income. In this case, you’ll need to figure out how to make that income work when you’re living in another country.
Money for beneficiaries or future visits: Maybe you’re already getting pension income because you’re the beneficiary of someone else’s policy, or you want to keep some funds in South Africa when you return to visit. Either way, you’ll need to understand how these funds will be affected by your move.
If you emigrate, will you need to leave your pension income behind in South Africa?
Okay, let’s clarify: you won’t have to leave your pension behind if you move. It’s still yours! But, yeah, there are a few extra things you’ll have to do to get it. First, your pension is taxed in South Africa, and you might have to pay tax on it in your new country, but there are ways to make that less painful. Your pension must be paid into a South African non-resident bank account before being transferred internationally.
The transfer process differs based on your tax residency status:
- If you remain a South African tax resident, you can use your Single Discretionary Allowance for annual transfers up to R1 million.
- If you are no longer a resident or wish to transfer amounts exceeding R1 million, you must use the SARS Approved International Transfer (SARS AIT) process.
Read more: How to get your money out of South Africa via SARS Approved International Transfer.
Making it work by maximising your South African pension income abroad
- Keep a South African non-resident bank account open: Vital for receiving and transferring your pension payments. (FinGlobal can help!)
- Optimise payment frequency: Review the fund’s terms to adjust how often you get paid and minimise foreign exchange fees. Annual lump sums, if they’re an option, are worth considering.
- Understand tax obligations: Learn the tax rules in both South Africa and your new country of residence to avoid nasty surprises. (Again, FinGlobal can assist!)
- Minimise foreign exchange costs: Try to reduce how often you move money about and choose a forex provider with competitive rates and dependable service.
- Call in the professionals: Consult with cross-border financial planning experts to ensure you’ve grasped regulatory complexities so you can get the most out of your pension management.
FinGlobal: trusted cross-border financial specialists for South African expat retirees
No matter where you dream of spending your retirement – sunny Spain, cosy Cotswolds, or wherever your heart desires – FinGlobal is here to make sure your money moves with you, friendly and straightforward.
We can help you with everything, from sorting out your tax emigration to getting your money transferred overseas without any headaches. We can even help you with your retirement annuity if you need to cash it in. We’re all about ensuring you don’t lose money on fees, don’t waste time on paperwork, and stay on the right side of the taxman.
We’ve got a brilliant team of financial planners, lawyers, accountants, tax experts, and bankers – all who know their cross-border retirement planning stuff, and they’re ready to put together a plan that’s just right for you, tailored to your specific needs.
So, if you have any questions about retiring overseas or just want to chat about how we can help, please fill out the contact form below.