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Clearing up misconceptions around South African retirement savings and moving abroad

By May 23, 2022October 11th, 2023FinGlobal

Clearing up misconceptions around South African retirement savings and moving abroad

May 23, 2022

There has been much confusion in the expat community since the concept of formal emigration through the South African Reserve Bank was phased out, effective 01 March 2021. These changes seem to have raised more questions than they’ve answered, so we’ve put together this quick guide that covers the questions we receive most frequently from South Africans abroad, with regards to their retirement annuity savings.

South African retirement savings

How do I access my retirement annuity without formal emigration?

Before 1 March 2021, the South African Reserve Bank allowed individuals who had formally emigrated from South Africa to access their retirement annuity and preservation fund savings before the age of 55.

After 1 March 2021, individuals must become non-residents by completing the process of tax emigration. To do so, individuals must be able to show the South African Revenue Service (SARS) that they no longer meet the requirements for tax residency.

In other words, the process of formal emigration as a trigger event for the withdrawal benefit on a retirement annuity before the age of 55 has been replaced by the process of tax emigration.

Read more on our blog:

  • Tax emigration vs formal emigration: the facts
  • In case you missed it: financially emigrated doesn’t mean tax emigrated

Can I cash in my retirement annuity after the age of 55 if I tax emigrate from South Africa?

Even if you were to complete the process of tax emigration and become a non-resident, if you are older than 55 the retirement annuity withdrawal rules no longer allow you to cash in the full value of your fund. After 55, you are only able to take one-third of your nest egg as cash, the remaining two-thirds must be used to purchase an annuity that will pay out a pension income for your retirement.

Only where the value of your retirement annuity is less than R247 500 would you be able to access the full amount, less any taxes that might be payable. Where the value is above R247 500 then the one-third/two-thirds principle applies, in terms of which you can withdraw one-third in cash after applicable taxes have been paid and invest the balance for a monthly income in some form of an annuity.

What happens when I tax emigrate from South Africa?

Tax emigration changes your status from resident to non-resident for tax purposes. This status change tells SARS that you no longer meet the requirements for tax residency.

Considering tax emigration? Weigh up the pros and cons before deciding.

One of the major benefits of completing tax emigration is that you terminate your South African obligation to pay expat tax on your worldwide income. However, one of the major drawbacks is that tax emigration is a deemed Capital Gains Tax event.

Capital gains tax is a tax SARS expects whenever you make a profit from selling something you own. When you declare that you no longer meet residency requirements, SARS treats you as if you have sold your assets (excluding immovable property in  South Africa and your retirement annuity) to your now-foreign self. Accordingly, a capital gains tax amount known as an exit tax becomes immediately payable.

A capital gains tax amount, known colloquially as an “exit tax”, becomes immediately due.

When should you tax emigrate from South Africa?

Capital Gains Tax is not a flat rate. A portion is added to your other income for that tax year and you will be taxed according to the applicable bracket. The CGT rate can range between 7.2% and 18% depending on the tax bracket you’re in, so if you were to leave South Africa early in the tax year, your total income for the tax year would be lower. This is just one reason it’s better to cease tax residence sooner rather than later.

How long must I wait before I can cash in my retirement annuity after I tax emigrate from South Africa?

Once you become a non-resident for tax purposes, it is necessary to wait three years before you’ll be able to access and cash in your retirement annuity before the age of 55.

If you left South Africa more than three years ago, your tax emigration can be backdated to the date that you departed and you can access your retirement annuity immediately without waiting.

Does this rule apply to other types of retirement savings?

This three-year lock-in rule applies to members of retirement annuity funds and preservation funds only – it does not apply to pension funds.

  • In relation to preservation funds, the emigration rule is only relevant where you have already exercised the right of one withdrawal, which means that you will need to wait until retirement age before touching your money.
  • In relation to a provident preservation fund, this rule only applies where you’ve taken the one permitted withdrawal before retirement. After age 55, the full amount can be taken in cash on retirement. Here, if you still have your  right to a withdrawal benefit before retirement, you are not affected by this change at all, and you can still withdraw in terms of the normal rules applicable to preservation funds.

FinGlobal: cross-border financial specialists for South African expats

Choosing a partner to handle your cross-border financial transactions is a big decision, but if made correctly it can be a decision that reduces your stress, lightens your admin load and ensures the safety of your money at all times.

FinGlobal is the financial services partner of choice for South Africans worldwide, and we’ve built our reputation on making it easy for expats to manage their finances and tax compliance in more than one jurisdiction.

To see how we can make your life easier, leave us your contact details and we’ll be in touch to discuss your cross-border financial service requirements.

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