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Expert insights: When is the right time to surrender your retirement annuity?

Expert insights: When is the right time to surrender your retirement annuity?

March 22, 2024


As you plan your financial migration as part of your permanent relocation from South Africa, you’re probably wondering what you should do with your retirement annuity. It’s a big decision to make, and one you shouldn’t undertake lightly. To help smooth the way for you, and give you everything you need to make the right choice, we’re going to take a few minutes to explore your options when it comes to your retirement annuity before and after your emigration from South Africa.

South African retirement annuity fund rules

According to South African retirement fund rules, you’re not permitted to withdraw from your retirement annuity before the age of 55. This is because legislation has been designed to ensure that retirement annuities are tax-efficient vehicles structured in such a way that individuals are encouraged to save during their working years to provide for themselves once they’ve retired from their careers. The retirement annuity fund withdrawal rules are meant to protect your future income from being eroded by your present day needs. If you could tap into those savings at your discretion, it’s unlikely that you’d have the discipline to ensure your retirement was adequately catered for.

However, every rule has its exceptions, and withdrawal from your South African retirement annuity is possible under certain circumstances. One of the exceptions to the rule, comes in when you cease South African tax residency after emigration. Once you are a non-resident for tax purposes, you become eligible to surrender your retirement annuity, after you have maintained your non-resident tax status for three unbroken years.

As such, what to do with your retirement annuity after your emigration depends on the number of candles on your last birthday cake.

Withdrawal rules: what are your options for accessing retirement annuity benefits before retirement or age 55?

  • If you belong to a preservation fund, you are permitted to make a single withdrawal from your benefit before reaching retirement age. This option is also available if you transferred your benefit into the preservation fund before you reached the expected retirement age in the transferring fund.
  • Similarly, as a member of a retirement annuity fund, you can activate your withdrawal benefit before retirement if the total value of the fund falls below the prescribed minimum, which is currently R15,000.
    Withdrawing your South African retirement annuity in full only becomes an option only once you have ceased South African tax residency and been a non-resident for a minimum of three years.

However, when you withdraw money from your retirement annuity before you reach the age of 55, your tax liability will be steeper than at retirement date. This is meant to have a deterrent effect and prevent you from making an ill-considered decision that jeopardises your retirement years.

Read more: Three misconceptions about the three-year rule on Retirement Annuity withdrawals for South African expats.

Withdrawal rules: what are your options for accessing retirement annuity benefits at age 55?

  • Once you’ve celebrated your 55th birthday, you qualify to activate your retirement withdrawal benefit under ordinary circumstances. However, you will only be allowed to take one-third of your benefit as a lump sum cash payment. You will be required to use the remaining funds to buy an annuity product in South Africa, that is to be used to provide a regular income during your retirement. Your purchased annuity will pay out a pension income in South Africa, at a frequency of your choice, which must then be transferred abroad. This pension income is also subject to tax in South Africa.
  • If the total benefit in your retirement annuity fund is R247,500 or less, at retirement date, you will be permitted to withdraw the entire amount as cash, once you’ve been taxed on it. After tax, this money is yours, free and clear, to do with as you please.

Withdrawal rules: what are your options for accessing retirement annuity benefits after age 55?

After the age of 55, if you emigrate and cease tax residency, your options are the same as those listed above. You can withdraw up to one-third of your retirement annuity fund as a lump sum (with no penalty) but you will be taxed on this lump sum payment, according to your marginal tax rate. Although you no longer live in South Africa, you must still use the remaining two-thirds of your nest egg to purchase an annuity that will pay a pension income during your retirement, as you have already celebrated your 55th birthday. Again, this annuity income can only be paid out in South Africa and will need to be remitted abroad for your use. Such pension income is taxable.

Read more: What if I only cease tax residency in South Africa after retirement?

FinGlobal: retirement annuity encashment specialists for South African expats

As you might have gathered by now, the best time to surrender and withdraw your South African retirement annuity is after you have emigrated from South Africa, but before the age of 55. As such, if you’ve already relocated overseas, we’d like you to know that you don’t have to leave your retirement savings behind.

  • If you’re under the age of 55, FinGlobal can help you to complete tax emigration and make a full withdrawal from your retirement annuity and remit your proceeds abroad (less tax and any potential penalties).
  • If you’re over the age of 55, FinGlobal can advise you on the best way to structure your annuity income payouts to ensure that funding your retirement is as tax-efficient as possible.

Interested in hearing more about how we can help with your financial migration? Leave your contact details below and one of our expert consultants will be in touch.