Cashing in your South African Retirement Annuity
When can you cash in your South African Retirement Annuity?
As long as you’re still living in South Africa, your options for cashing in your Retirement Annuity before the age of 55 are limited.
|For South Africans already living abroad permanently||For South Africans in the process of emigrating|
|You must have already ceased being tax resident in South Africa.||You will be allowed to access your Retirement Annuity early once you have maintained this tax non-resident status for at least three years.|
|You will need to cease tax residency after you have physically left South Africa.||You will be allowed to access your Retirement Annuity early once you have been a tax non-resident for at least three years.|
What is tax emigration and how do you cease being a South African tax resident?
- You must fail to meet the South African tax residency tests: as applied by SARS to determine whether you are either ‘ordinarily resident’ or ‘physically present’.
- You must make a status-change application to SARS: for the Emigration Tax Clearance Certificate with supporting documents to prove your non-resident status.
- You must expect an “exit tax” bill: this is Capital Gains Tax calculated on your worldwide assets, in terms of section 9H of the Income Tax Act.
- You will be put through a stringent tax audit: by SARS auditors with support from the SARS Foreign Employment team who will assess your residency status assertion.
- You must obtain approval from SARS: through verifying your tax compliance status and the source of your funds after which a bank (Authorised Dealer) may transfer your funds abroad.
What is a Retirement Annuity?
- The fund rules determine the retirement date, which is generally at 55, effective once you complete the administrative requirements to access your Retirement Annuity.
- You cannot cash in your Retirement Annuity until you retire, unless you are totally disabled. In such a case, the rules do allow you to encash your Retirement Annuity.
- The remaining funds in the Retirement Annuity must be used to provide you with a regular pension for your lifetime, which also is fully taxable.
- You can decide to apply the full fund value towards the monthly pension provision. It isn’t compulsory to take a lump sum upon retirement.
What if I left South Africa years ago without completing tax emigration?
What if I only ceased tax residency in South Africa after retirement?
- After 55 the post-tax lump sum (if you choose to take one-third as cash) will be remittable as part of your foreign capital allowance.
- If you are already receiving a regular retirement income, this money will be remittable (after tax) but the underlying capital will need to remain in South Africa.
What is the tax payable if you encash a Retirement Annuity in South Africa?
The full value of your Retirement Annuity fund will be accessible when all the requirements for withdrawal are met.
- Income tax payable is specified in a tax table for retirement fund lump sum withdrawals contained in the Second Schedule to the Income Tax Act, No. 58 of 1962.
- The larger the lump sum, the higher the tax bracket and tax rate that is payable.
The tax table is as follows
|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|
Tax on lump sum Retirement Annuity withdrawals and the rule of aggregation
- 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.
- Any lump sums received prior to these dates will not contribute towards aggregation.
- The aggregation rule is supposed to discourage people from accessing their retirement funds early.
- SARS keeps record of all previous lump sums, so it’s important to get the correct information; as this can have a significant impact on your tax payable on the lump sum being withdrawn.