Early withdrawal from South African retirement annuities

Everything you need to know about the early withdrawal from South African retirement annuities and transferring your funds abroad

Early withdrawal from South African retirement annuities

Everything you need to know about the early withdrawal from South African retirement annuities and transferring your funds abroad

Retirement annuity withdrawal rules for South African emigrants

The full withdrawal of the capital in retirement annuity policies are possible at any age, once you have:

(1) ceased your South African tax residency with the South African Revenue Service (SARS) and

(2) remained a South African tax non-resident for 3 (three) years after tax cessation.

What is tax emigration and how do you cease South African tax residency?

Tax emigration is the process to apply to the South African Revenue Service (SARS) to cease your South African tax residency and change your tax status from resident to non-resident for tax purposes.

What is a retirement annuity?

A Retirement Annuity is a retirement savings product offered by insurance companies as a tax-efficient savings vehicle for retirement.

Generally, these savings can only be accessed after the age of 55 when the contractual retirement date is met.

Once retirement date is reached, and the retirement option is exercised, you can then access and withdraw a maximum of (1/3) one third of your funds in the retirement annuity as a lump sum that will be subject to income tax. The remaining funds (2/3) two thirds in the retirement annuity must be used to provide you with a pension, which is taxable.

Nevertheless, the entire capital value of a retirement annuity can be withdrawn after a waiting period of three years following the termination of tax residency in South Africa.

Many South Africans left and did nothing. However, if you left South Africa without ceasing your tax residency with SARS and you now wish to cash in your retirement annuity, you’ll have to tax emigrate first. You can apply to cease tax residency retrospectively, which date will generally be the day before you left South Africa on a permanent basis. This date will be the effective tax cessation date and retirement annuities can be withdrawn after 3 (three) years from this date.
You can only access the full capital in a retirement annuity policy once tax emigration was concluded and the policy was held for 3 (three) years after this date. If the retirement annuity policy is still active, i.e., the retirement option on the policy was not exercised at the policy maturity date, the full capital can still be accessed at any age.
RETIREMENT ANNUITY AMOUNT TAX RATE
First R25 000 0%
R25 000 – R660 000 18% above R25 000
R660 001 – R990 000 R114 300 + 27% above R660 000
R990 001+ R203 400 + 36% above R990 000
 
When applying the tax table to the lump sum amount, the rule of aggregation applies. This means that all previous retirement fund lump sums withdrawals are added together, which pushes you up into a higher tax bracket. The lump sums that will contribute towards aggregation are as follows:
  • Retirement lump sums received after 1 October 2007,
  • Withdrawal lump sums received after 1 March 2009,
Severance benefit lump sums received after 1 March 2011.
Penalties may vary between 0% and 30% when you withdraw from or pay up a retirement annuity policy, which is why it’s important to ascertain the penalty (if any) before you make any decisions.

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