Pension income

A South African pension is heavily legislated, which can make it tricky to deal with if you’ve emigrated from South Africa. FinGlobal can simplify the process for you.

Pension income

A South African pension is heavily legislated, which can make it tricky to deal with if you’ve emigrated from South Africa. FinGlobal can simplify the process for you.

Here’s what you’ll need to know about pensions and living annuities in South Africa.

The decision to leave South Africa requires some extra thought if you are already receiving South African pension income (as you have retired from some, of or all of your retirement funds). Especially so, if you have inherited pension income streams or you’re contemplating leaving a portion of your pension fund in South Africa as retirement income to fund return visits, or as a means to financially assist remaining family members with study things like study costs, etc.

When we discussed the different retirement funds – pension/provident/RA or preservation funds – the member (that’s you) always has the option at retirement to apply a portion or the whole retirement value to provide for a monthly pension income. When it comes to the retirement annuity and pension fund, current legislation states it must be at least two-thirds of the retirement value. Most retirees choose to use some form of annuity provided by life insurance companies to fund such income – however, some may elect pension income that stems directly from the retirement fund.

It should be determined from the outset that the capital used to fund these pensions will not be accessible upon financial emigration and will have to remain in South Africa until the pension income ceases to exist, should the owner of the pension die.

The pension income is payable only in South Africa but can be remitted offshore. Since it’s from a South African source it will be subject to tax in South Africa but also subject to the provisions of any Double Taxation Agreement that may exist between South Africa and the country of residence.

Double Taxation Agreements and Tax Exemption

As a tax resident of another country, you’ll also be taxed on your worldwide income.

Most periodic annuities and pensions are taxed in full in South Africa, regardless of tax residency. This means you’ll need to include the income in your South African tax return in your new country of residence as well.

South Africa is party to many Double Taxation Agreements. The purpose of these agreements is to eliminate double taxation, which means that certain income will only be taxed once. This means that you might be eligible for tax relief in South Africa, resulting in the annuity or pension income being taxable only in your new country of residence.

To qualify for such tax relief in South Africa, an RST01 application must be made to the South African Revenue Services. An RST01 is an application by a tax non-resident for a directive for relief from South African tax for pension and annuity income, in terms of a Double Taxation Agreement. This application must be renewed annually.

If you’ve paid tax on your South African annuity and pension income in South Africa (administrators will usually withhold Pay as You Earn (PAYE) from the income before paying it across to you, unless the directive mentioned above has been issued), you are eligible to claim a refund for the tax paid by submitting an RST02.

An RST02 is an application by a tax non-resident for a refund of South African tax for pension and annuity income in terms of a Double Taxation Agreement.

South African living and life annuities

Living annuities are retirement investment products, used to provide you with a monthly pension along with your retirement South African savings at retirement. The living annuity provides you with the flexibility to select your income rate on an annual basis, ranging from 2,5% to 17,5% per year. You also have control of the underlying investments and the investment portfolios in which the underlying capital is invested.

The amount you draw (the draw-down-rate), how your investments perform and how long you live plays a role in whether the capital will allow you to draw the required amount (with inflation increases) until you die. That means you bear the investment and mortality risk attached to the investment. Upon death, the capital remaining is then available to heirs.

You can switch your entire investment in a living annuity into a guaranteed annuity whenever you want.

It’s a pension product you purchase from a life insurer at retirement. It provides you with a monthly pension, guaranteed at a set amount by the insurer, regardless of how long you live. You can choose a pension with no increase, a pre-determined increase or an inflation-linked increase. You can also select South African pension options and guaranteed terms to ensure your income is at least guaranteed for a fixed minimum term – even if you die during this time.

At death, the annuity ceases and no benefit is passed to your heirs (unless there is a guaranteed term, in which case the income will continue for that term in favour of your nominated beneficiary). Unlike a living annuity, once you invest in a guaranteed life annuity, you are locked in for life and you cannot transfer to another investment type.

In the case of a guaranteed life annuity, the life insurer bears the investment and mortality risk associated with the investment and negative investment returns will not impact the contractual income levels.

South African Living annuities


You are not allowed to access the capital as a lump sum until it reaches the commutation limit of R50 000 (R75 000 in some instances). Financial emigration also does not allow you access to the capital.

You may invest up to 100% of your capital in a foreign currency-denominated investment portfolio, earning growth in a hard currency and hedging yourself against the local market and volatile Rand.


The income received from an annuity is paid out in Rands and must be converted to foreign currency to allow for an international funds transfer.

The income level (between 2,5% – 17,5% of investment capital) and payment frequency (monthly, quarterly, annually) can be adjusted every year on the policy maturity date. Access to your local bank account and the cost of international transfers must be considered when choosing the frequency of transfers. Capital preservation must also be factored in when choosing the level of income withdrawal.

Policy full cash in

Living annuities can be cashed in and terminated once the capital in the policy is less than R50 000 (R75 000 in some instances). It is possible to reduce your capital through an accelerated depletion strategy but in such a case, the capital amount is subject to taxation.

South African Life annuities

The income level is fixed and will increase annually based on the annuitisation method selected when the product was acquired.


No access is possible in any circumstances.


The income payment frequency must be considered. Depending on how you access the income in South Africa, you might want to think about limiting offshore transfers because of costs (bank charges, commissions, swift fees). One option is to select to have income paid in an annual instalment, in advance. This means you get your retirement income from South Africa once a year and you only have to make one offshore transfer to get it.

It is a good idea to consult the fund rules to determine what options you have in respect of annual adjustments to payment frequencies, etc. In many instances, there is very little flexibility. Once you know what you are dealing with, it is easier to figure out your next move.


The fund administrators and trustees are responsible for managing the underlying assets of the investments that generate income for their pensioners. You do not have control over how the investments are managed.


The income payment frequency can be considered in line with the fund rules. If the fund rules allow for it, it is worthwhile to choose to have the pension income paid in an annual instalment, in advance. You will receive your retirement income from South Africa once a year and only need to make a single offshore transfer to access it.

When you reach your retirement date (in terms of your contract) it generally also means that you also reach the retirement date of the retirement fund provided by your employer.

If you belonged to a pension fund, the result was that you had no choice at that time other than to retire from the fund, which left you with having the choice to take a maximum of one-third in cash and leaving the rest into an annuity (which is then locked in South Africa).

Thankfully, legislation has loosened in this regard, an amendment means that you can now transfer this retirement benefit to a retirement annuity (and a pension preservation fund from 1 March 2019), which affords you the opportunity to consider all your options if you are in the process of emigrating as you’re retiring.

By transferring to the retirement annuity, you’re essentially making your retirement date undetermined and open for selection in the future. That leaves you with the option to withdraw the full fund value before that date if you decide to emigrate. This will be treated as a withdrawal and taxed as one and will not be subject to the one-third restriction that applies at retirement.

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