I can’t cash in my retirement annuity.
If you live overseas on a permanent basis you can surrender your retirement annuity at any time, even before the recognised retirement age of 55.
I’m going to leave my retirement annuity in place until I’m 55 and withdraw the whole lot as a lump sum then.
There is no automatic right to withdraw in full from a retirement annuity at age 55, unless the value is less than a particular threshold; currently R75, 000.00. To make a full withdrawal, which you can do even before reaching age 55, you will need to complete an exchange control process to change your financial status in South Africa from resident to non-resident; the process is known as financial emigration.
If I cash in my retirement annuity before I’m 55 I’ll lose money.
Not necessarily; when you surrender a retirement annuity early you may, in certain cases, pay a penalty to the insurance company and you will pay tax to SARS, however if you invest the proceeds into your UK pension you’ll get a “top-up” to your contribution, in the form of tax relief from HMRC. As a result, you may end up putting more into your UK pension than you take out of your SA pension, i.e. you could actually gain financially. This option is unique to the UK and one which is certainly worth investigating.
I’ll pay tax in the UK if I bring over my retirement annuity proceeds.
If you contributed to your retirement annuity only when you were tax resident in South Africa, the value upon surrender is considered “clean capital” and will not give rise to a tax liability in the UK, upon introduction of the funds.
I can’t cash in my retirement annuity because I may decide to retire in South Africa.
Yes you can, and it may be exactly the right course of action to take. Why? Well, if you invest the proceeds of your retirement annuity in your UK pension you can potentially increase the value of that contribution, courtesy of tax relief from HMRC. In fact, in sterling terms, the investment may be worth more in your UK pension than it is in your South African pension. If you then retire to South Africa the income you receive will be from an overseas pension and as such, is tax free.
It’s easier to deal with my retirement annuity if I leave it in place until I’m 55.
Not necessarily; whatever action you decide to take at age 55 will require a full financial presence in South Africa, i.e. an active up to date tax record with SARS and an active, resident based bank account. You’ll also be required to submit annual tax returns as you will be receiving an income.
For a free consultation about your retirement annuity, let us call you.