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The growing concern of pension sustainability for South African expats

The growing concern of pension sustainability for South African expats

February 28, 2024


Despite having emigrated to escape a myriad of worries, a shadow of concern still lingers for many South Africans living abroad. It’s not the pangs of nostalgia for braai, boerewors and brandewyn, but the gnawing anxiety over the fate of their hard-earned pensions and retirement savings left behind in a country beset by economic uncertainty. Distance may offer physical escape, but for many expats, financial security is linked to the unpredictability of South Africa’s retirement savings industry. What can be done about this situation from abroad? Let’s unpack your options.

Why are South African expats worried about their retirement annuities and pension funds?

Like many things in life, the reason for anxiety is rarely straightforward. The investment landscape in South Africa is marked by challenges that significantly impact retirement annuity and pension funds. The economic situation of the country contributes to lower-than-ideal investment returns, raising concerns about the long-term solvency of some funds. Additionally, the presence of high inflation further complicates the scenario, as it diminishes the value of savings over time. This means individuals must save more into their retirement annuities today to maintain the same purchasing power in retirement.

Currency fluctuations pose another layer of uncertainty, particularly for expats. The volatility of the Rand against other currencies, such as the Euro or Dollar, where many expats now reside, adds to the complexity. These fluctuations have the potential to erode the value of accumulated pensions when they are transferred. Regulation and access to retirement annuity and pension funds from abroad also present a complex and time-consuming process for expats. Jumping through the administrative hoops can lead to delays and may have unexpected potential financial and tax consequences. Limited options when it comes to income at retirement age only increases the concern for expats. In comparison to those living in South Africa, expats often have fewer alternatives for supplementing their pension income, which means they’re even more reliant on the stability of their existing pension funds.

What does this mean for South Africans who have been saving for their retirement diligently all these years?

All of these worries translate into reduced financial security. Expats are rightfully concerned about their ability to maintain their desired standard of living during retirement due to potential pension shortfalls. This kind of worry leads to increased anxiety and stress, which ultimately may impact the retirement plans of many expats. They may find themselves having to downscale their retirement plans and consider additional income sources to compensate for potential pension uncertainties.

What can expats do about their retirement annuities and pension funds after they’ve emigrated from South Africa?

There are a number of possible solutions that can be considered to alleviate the stress for expats when it comes to their retirement savings:

  • Diversification: Some expats explore diversifying their retirement portfolio with investments outside of South Africa to mitigate currency risk and exposure to a single economy.
  • Professional advice: Seeking professional financial advice from experts familiar with expat situations can be helpful in navigating regulations, optimising investment strategies, and planning for different scenarios.
  • Staying informed: Keeping up with developments in South Africa’s pension and retirement annuity landscape and relevant legislative updates can help expats make informed decisions when it comes to their retirement security.
  • Retirement annuity withdrawal: one of the most effective ways to minimise the stress associated with a pension in South Africa is to shut down the source of the worry entirely. Cashing in your South African retirement annuity fund and transferring your savings out of the country means you have nothing left to worry about in South Africa.

Can you withdraw from your retirement annuity or pension once you have emigrated?

Yes. Once you have left South Africa permanently, if you have not yet already started drawing an income from your pension or retirement annuity, you become eligible to cash in your retirement savings after you have completed tax emigration, become a non-resident for tax purposes and maintained your non-resident status for a minimum of three years.

Potential benefits of withdrawing your retirement annuity or pension savings from South Africa:

  1. Immediate access to funds: You gain immediate control and flexibility over your money, allowing you to use it for various purposes like investing in other markets, purchasing property abroad, or travel.
  2. Escape currency volatility: By transferring funds out of the vulnerable Rand, you potentially shield your retirement savings from further depreciation and market fluctuations.
  3. Simplify financial affairs: With one less financial instrument to manage abroad, you may simplify your financial portfolio and reduce your administrative burdens, particularly given that pension income paid out in South Africa is taxable in South Africa, which could lead to an unwanted double taxation scenario.
  4. Hedge against uncertainty: If you have doubts about the long-term solvency or stability of your SA retirement funds, cashing out could offer some peace of mind.

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