Despite having been in effect for a number of years already, there is a fair amount of uncertainty about how tax emigration and retirement annuity withdrawals work in South Africa, particularly in terms of the timings required once an individual has emigrated from South Africa permanently with no intention of returning. Many people are confused about the timelines involved in the new “three-year lock-in” period, introduced into South African tax law relating to the early encashment of retirement annuities as a non-resident emigrant.

With this in mind, we thought it would be helpful to discuss the practicalities and intricacies of this waiting period so you can adequately factor it into your financial planning and avoid any unnecessary delays in accessing your retirement annuity savings once you have permanently relocated from SA. Let’s start with clearing up two of the most common misconceptions about withdrawing your retirement annuities post-emigration:

1. The three-year rule means you must wait three years before you become eligible to surrender your retirement annuity, and only once this has been done can you finalise your tax emigration.
2. The three-year rule means that you must wait three years after completing tax emigration now to access your retirement savings, even if you physically relocated from South Africa many years ago.
3. Fortunately, these interpretations of the rule are incorrect, but before we unpack the actual answers, it’s necessary first to explain precisely which three-year is under discussion here.

What is the three-year rule on RA withdrawals?

The three-year rule applies to South African expats who want to withdraw their retirement annuity (RA) savings after leaving the country. Here’s what you need to know about the rule:

• Before March 1, 2021: Expats relied on “financial emigration” through the South African Reserve Bank (SARB) to unlock their RAs.
• After March 1, 2021: The system changed. Now, expats must complete “tax emigration” with the South African Revenue Service (SARS) to be eligible for RA withdrawal.
• Trigger event change: Previously, changing residency status from an exchange control perspective (SARB) allowed the RA withdrawal. Now, it’s based on your tax residency status with SARS.

What this retirement annuity rule means for you

To access your RA savings, you must:

• Have permanently relocated from South Africa with no intention of returning.
• Ceased your tax residency with SARS, which is confirmed by receiving a SARS Non-Resident Confirmation Letter.

In essence, the three-year rule hinges on your tax residency status. You must be a non-resident for South African tax purposes for three years before withdrawing your RA funds.

Read more: Understanding tax emigration from South Africa: a comprehensive guide.

What does this retirement annuity rule mean?

It does not mean you must wait three years after relocation before you become eligible to surrender your retirement annuity, after which you can finalise your tax emigration. Nor does it mean that you have to wait three years after completing tax emigration now, even if you physically relocated from South Africa many years ago.

This confuses the flow of events somewhat, which should go like this:

1. Emigrate from South Africa permanently
2. Complete tax emigration with SARS
3. Have your tax status changed from resident to non-resident
4. Maintain your non-resident status for three years before you can cash in your retirement annuity.

Fortunately, a little wiggle room comes in with the “maintaining your tax resident status” portion of the rule. When you complete tax emigration, you become a non-resident as of the date that you physically departed from South Africa. The clock on the three-year waiting period starts not only once you complete tax emigration. If you left South Africa more than three years ago already, you would be eligible to cash in the total value of your retirement annuity (less tax obviously) as soon as your tax emigration has been officially finalised through SARS.

Furthermore, the three-year rule does not apply to all retirement fund savings.

It’s important to note that the three-year rule doesn’t apply to all types of retirement savings in South Africa. Although the rule does mention “retirement funds,” it only impacts two specific types in practice:

• Retirement Annuities (RAs): These are individual investment accounts for retirement savings.
• Preservation Funds: These hold retirement savings you’ve transferred from a job when you changed employers.

Pension funds are exempt as the three-year waiting period doesn’t apply to pension funds. These are typically employer-sponsored retirement plans where the money stays invested until retirement.

Accessing Preservation Funds
Even if you’ve already used your one pre-retirement withdrawal from a preservation fund, you can still access the remaining balance after three years of non-resident tax status. However, you may face penalties and taxes from SARS.

FinGlobal: retirement annuity encashment specialists

Do you need a guiding hand to simplify your tax emigration and retirement annuity withdrawal? FinGlobal is ready to offer expert advice and streamlined services that make it easy to unlock your retirement savings and clarify your tax position in South Africa after your international relocation. From ceasing your South African tax residency to offshore transfers, we’ll make it straightforward and headache-free every step of the way.

Please request your free financial report today so we can best advise you on your options. Leave your contact details below to get started.