When planning your emigration from South Africa, fun and exciting tasks can come with your move, such as picking a new home, finding the right job that makes it worth leaving everything familiar behind, and planning your farewell party. In between all of that, many things to do are not quite as exciting. This is all the practical stuff that must balance out your sense of adventure to ensure financial stability. That means addressing the more complex questions: what do you do with your South African retirement annuity when you emigrate? Can you cash it in before you leave? What are your options? How do you move your finances to a new country?
Ready for the lowdown? You must know what you can do with your retirement annuity before and after you emigrate from South Africa.
Retirement annuities in South Africa – a recap on the basics
A South African retirement annuity is a popular investment vehicle designed to help individuals save for retirement. It offers tax benefits and flexibility, making it an attractive option for many. But how does a retirement annuity work in South Africa? Essentially, you contribute regularly, and the fund grows tax-free until retirement. You can access your funds at retirement through the various retirement annuity payout options available in South Africa.
The rules around retirement annuities are supposed to encourage South Africans to save for their golden years; as such, they’re designed to strongly discourage using these funds for any purpose other than retirement.
When can you access your South African retirement annuity?
As long as you remain a South African tax resident:
- You can access your retirement annuity at 55 when you retire officially. This is the general rule with a handful of exceptions that relate to death, illness and disability.
- Through South Africa’s two-pot retirement system, you can now access a portion of your retirement annuity savings on an annual basis.
Once you have become a non-resident of South Africa for tax purposes:
- You can access a portion of your retirement savings annually via the two-pot system, bearing in mind the tax implications.
- You can access the full value of your retirement annuity by ceasing your tax residency with SARS and maintaining this non-resident status for three consecutive years.
Read more: Tax emigration – how to become a non tax resident of South Africa.
Regulation 28 – it’s there to safeguard your retirement, but it could cramp your global style
For expats deciding what to do with their South African retirement funds, Regulation 28 is an influencing factor. Essentially, this set of rules protects retirement savings by limiting the amount of funds that can be invested in riskier assets.
This regulation ensures a degree of diversification that stops you from putting all your eggs in one basket and prevents your retirement portfolio from overexposure to any single asset class or market. Changes to Regulation 28 adjusted these investment limits, particularly for offshore and alternative investments, which can directly affect how your retirement funds are managed.
Therefore, expats should stay informed about these changes and consult a financial advisor to understand how Regulation 28 impacts their retirement plan, considering factors such as currency fluctuations and international tax implications.
Read more: Emigrating from South Africa? How offshore investments could help you escape the Rand.
Emigration and your retirement annuity
Whether you’re an expat presently or in planning, one of the biggest concerns is the impact of emigration on your South African retirement annuity. Many expats who emigrated several years ago would have accessed their retirement annuities by formalising their emigration (financial emigration) through the South African Reserve Bank. While the ability to withdraw funds upon emigration remains, the process has changed. This process was replaced by tax emigration, and the overseeing authority is SARS.
Accessing your retirement annuity withdrawal benefit will depend on your South African retirement and tax residency status.
If you emigrate before surrendering your retirement annuity, you can access the full value of your savings once you become a non-resident for tax purposes and maintain this status for a minimum of three years.
If you emigrate after surrendering your retirement annuity and you are already drawing an income (pension/annuity income), you will not be able to cash in your savings at any point. The capital underlying your life/ guaranteed living annuity cannot be transferred from South Africa.
This pension income will be paid out in South Africa only and must be remitted abroad using a non-resident bank account. It will be taxed in South Africa and might also attract tax in your new home.
Read more:
- Retirement annuities and pension income – what South African expats need to know.
- Retirement annuity policy surrender in South Africa: 3 important things for expats to understand
- Expert insights: When is the right time to surrender your retirement annuity?
Retirement annuity payout options in South Africa
When it’s time to access your South African retirement annuity, whether you’re still in South Africa or living elsewhere, there are a few key points to keep in mind.
- If your retirement annuity’s total value is below R15,000, you can withdraw it all as a lump sum, regardless of where you reside.
- If the amount is between R15,000 and R247,500, you can withdraw the entire sum, although it will be subject to lump sum tax.
- If you have multiple RAs with the same investment company and their combined value exceeds R247,500, you won’t be able to cash them all out at once.
For South Africans living abroad, there’s an additional layer of consideration.
- If your combined RAs are worth more than R247,500, you will be locked out of those funds until you’ve officially ceased your South African tax residency and maintained non-resident status for at least three years.
- Once you’ve completed tax emigration through SARS and can prove you’ve been a non-resident for the required three-year period, you’ll be allowed to withdraw the entire value of your RA funds, regardless of your age or the total amount.
- After taking care of the necessary lump sum withdrawal tax and any potential early withdrawal fees your specific fund might have, the remaining amount from your retirement annuity will be transferred to a South African bank account designated for non-residents. From there, you can move those funds to your overseas bank account.
Having cashed in your retirement annuity in this manner, you will have complete freedom to manage those funds as you see fit. You’re not obliged to reinvest them into any retirement savings plans in your new country of residence; the money is yours to use.
Read more: Tax on retirement annuity withdrawal in SA – what expats need to know.
FinGlobal: retirement annuity encashment specialists
Just because you left everything else behind when you emigrated from South Africa, doesn’t mean you have to forget about your retirement annuity. That’s your hard-earned money, and FinGlobal can help you cut through the red tape to get it, handling your retirement annuity withdrawal for you.
Moving your finances is a headache, so we make it simple, fast, and cost-effective for you, from start to finish. We handle all the tricky bits – the taxes, the transfers, compliance – so you don’t have to. We walk you through getting your money out of South Africa safely, exactly as you require. We’re here to make your life easier on all matters relating to tax emigration, retirement annuity withdrawal, pension income transfers, expat tax compliance and more.
Let FinGlobal streamline your post-emigration retirement annuity withdrawal. Drop us your contact details below, and we’ll take it from there.