By Mariette Janse van Rensburg
A fin24 report of 24 September 2006 quoted one million South Africans left the country “in the past ten years” – what the report didn’t mention was the value in retirement annuities they left behind. In those days there were no options …
Two years after the report things for expats changed for the better – since then amended legislation affords emigrants the opportunity to transfer their retirement annuity funds offshore, even before the controlled retirement age 55.
The fact of the matter: a large portion of expats from this era is now approaching retirement age and have retirement investments with their name on it back in South Africa. Some people are aware of these investments and they’ll be thinking ‘how to’ access and transfer their funds offshore – sadly however many expats are unaware of the fact, for them too, there’s money waiting for them at the end of the rainbow!
At finglobal.com we offer -both the aware and unaware expats – solutions to move their money offshore. Safe, simple and secure means to one: establish the value of retirement funds available for transfer, two: whether indeed you are due funds of which you’re not aware of and three: how you can cost effectively transfer these funds offshore.
In this blog I am spelling out viable options available to South Africans around the world on helping to make informed decisions for a joyful end of their rainbows.
Option 1: Withdraw your investment in one lump sum
You’re living abroad, haven’t financially emigrated, you’re under age 55 and want to transfer the full value of your retirement annuity money to your new home county.
In line with the 2008 revision in legislation you’re fully entitled to transfer the full lump sum of retirement investment value abroad, subject to criteria, which include tax clearances, SARS, opening a blocked Rand account and Reserve Bank. Managing this process over long distance and different time zones is a challenge which requires insight, know how and skill to accomplish timeously and cost effectively.
The process is referred to as financial emigration – the term used when for Reserve Bank purposes your residency status changes to non-resident South African so as to freely transfer your financial assets to your new home country. A change in residency status does not influence or affect your birthright, citizenship, visa status or right to a South African passport.
The benefits in transferring retirement funds abroad include, amongst others, arresting Rand/Dollar depreciation, enabling estate beneficiaries to freely transfer inheritance income offshore, lower cost of risk cover and more.
Option 2: Normal retirement – when your values exceed R75000
On retirement, from age 55 or older, you’re allowed to withdraw one-third of the capital value in cash as a lump sum. The balance is used to buy a compulsory annuity in South Africa to be paid as a monthly pension.
The balance of funds, two-thirds, is to be invested in either a living annuity or fixed income structure, guaranteed for a specified period. Considerations influencing your decision include your health, your age and risk profile, and longevity of relationship with your South African broker as well as the ever-present exchange rate issue. Legislation changes accommodate offshore funds transfer without Reserve Bank approval. When structured correctly your pension payments won’t be subjected to double taxation in this income.
Be mindful – once committed to a monthly pension payment it is impossible to revert to, or access, the lump sum investment value.
Option 3: Normal retirement – when your value is less than R75000
The cost of transferring a retirement investment with a maturity value of less than R75000 offshore may not be worth your while, in which case you’ll be better off to wait out retirement age.
On maturity and receipt of funds you’ll be entitled to transfer the full lump sum offshore without having to record your financial emigration with the Reserve Bank. In order to cost effectively transfer your retirement funds offshore it is prudent to seek the advice of a registered financial services provider.
To transfer these funds abroad you need to consider your personal circumstances, as there is no off-the-shelve solution that fits all. You’ll still need an appropriate South African bank account, relevant tax services and an effective means to safely and securely transfer your investment offshore.
Your total portfolio/personal circumstances must be considered before you accept this option.
Option 4: Don’t care attitude coupled with death
A ‘stand alone’ retirement annuity without additional life cover will pay out the full fund value on the policyholder’s passing.
Tax on the proceeds will be calculated in the same way as a retirement benefit. Beneficiaries, however, will find themselves in similar position, as policyholders in option 2 above. They’ll receive one-third of the policy value in cash and the balance in the form of a compulsory monthly annuity. Beneficiaries’ inheritance annuity will be taxed at its marginal rate while monthly offshore funds transfer will be subject to relevant costs.
Furthermore, beneficiaries of a retirement annuity are subject to trustees’ approval. Nomination, however, does not guarantee benefit payment to the specific person(s).
Option 5: Don’t write off that retirement annuity!
Lack of communication and accurate information has left many South African expats believing it’s easier to write off their low value retirement monies than to waste time and money in a long distance red tape battle! Waiting for retirement age at 55 soonest can be costly.
The problem? It’s still not common knowledge that legislated retirement age has been amended from previously forced retirement age of 70, most companies do allow you to retire after 70 as well. You might forget these funds over the years or your beneficiaries might never know about it if you should pass away. The solution? South African expats no longer need to wait out the retirement clock, cash it in today.
Given the fact you’re free to retire before age 55 subject to conditions – which is fair enough – my motto? Never write off a retirement annuity!
Hindsight is an exact science and no one can with accuracy predict the Rand’s future strength relative to other major currencies. For that matter, nor can we predict tax or government pension reforms.
Looking back we must ask ourselves: what will it take to reverse the currency’s 10-year negative trend?