As a South African expat, staying informed about changes in your home country’s financial landscape is crucial, especially when it comes to your hard-earned retirement savings. The recent introduction of the ‘two-pot’ retirement system in South Africa marks a significant shift in how retirement funds are managed and accessed. This new system, set to roll out on September 1, 2024, brings both opportunities and considerations for expats. Let’s dive into what this means and how it might affect your financial future.

Understanding the two pot system: a game-changer for retirement savings

The two-pot system offers more flexibility for retirement fund members while ensuring long-term financial security. This innovative approach divides your retirement contributions into two distinct pots from the 1 September 2024:

• a savings pot – one third
• a retirement pot – two thirds

Each serves a unique purpose with its own set of rules.

The savings pot: your financial safety net

The savings pot will hold one third of your retirement contributions made after September 1, 2024. It acts as a financial cushion for emergencies or tough times, essentially functioning as an emergency fund within your retirement savings.

A key feature of the savings pot is its accessibility. You can withdraw funds from this pot once per tax year, providing a level of financial flexibility not typically found in traditional retirement funds. Withdrawals will be taxed at your marginal income tax rate. The minimum withdrawal amount is R2,000, but there’s no maximum limit.

The retirement pot: securing your future

The remaining two-thirds of your contributions will go into the retirement pot. This pot is meant for long-term savings and can’t be accessed until you reach retirement age. At that time, the full amount must be used to purchase an annuity, ensuring a steady income during retirement.

The vested pot: honoring your past contributions

For those who contributed to retirement funds up to 30 August 2024 , your existing savings will go into the ‘vested pot’. This pot will operate under the original rules when you made those contributions.

To launch the new system, there will be a one-time transfer of 10% of your retirement savings from the vested pot (the transfer will be made from the lesser of the two) to the savings pot, capped at R30,000. This transfer is intended to ‘seed’ your savings pot, giving you immediate access to funds under the new system.

What this means for South African expats

As an expat, you might be wondering how this new system affects you, especially if you’re planning to access your retirement funds from abroad. Here’s what you need to know:

Accessing your retirement funds as an expat

If you’ve emigrated from South Africa, you’ll have a unique opportunity to access both your retirement pot and any remaining funds in your savings pot as a lump sum. However, there’s a catch – you’ll need to prove that you’ve been a non-South African tax resident for at least three years. If you have been a non-resident for three years or more, you can access all three pots. However, this three-year rule applies only to the retirement and vested pots, not the savings pot.

The importance of Non-Resident tax status with SARS

As an expat, if you want to access your funds, you need to obtain a Notice of Non-Resident Tax Status Letter from the South African Revenue Service (SARS). To qualify for this non-resident tax status confirmation letter, you must meet these criteria:

• You must have previously been a tax resident of South Africa.
• You must have permanently left South Africa and been away for at least one year.
• You must not have significant economic ties to South Africa, such as a home, job, or business.

In essence, you must no longer fulfill the requirements for tax residency in South Africa to become a non-resident.

To obtain the non-resident tax status confirmation letter, you first need to complete the cease to be a tax resident process through SARS. This process requires you to provide SARS with details regarding your assets, liabilities, and income.

Next, you will apply for the non-resident tax status confirmation letter by submitting a written application to SARS.

• Visit the SARS website for the documents required to complete this application: Cease to be a resident

It is crucial to note that the process to cease being a tax resident is not automatic. You must actively apply for the non-resident tax status confirmation letter from SARS. Failing to do so may result in your continued liability to declare and pay South African tax on your worldwide income.

The non-resident tax status confirmation letter is vital for accessing your retirement fund before turning 55, as it verifies the date your tax residency in South Africa ended.

The AIT TCS PIN: your key to international money transfers from South Africa

In addition to proving your non-resident tax status, you’ll also need to apply for an Approval International Transfer (AIT) TCS PIN.

For transfers that exceed the SDA limit from the first 1 million (for non residents) or fall under specific categories, you must submit an AIT application through the SARS eFiling platform. If your application is successful and you obtain tax clearance, you will receive a SARS AIT PIN. Non-residents transferring funds out of South Africa must also utilise the AIT clearance process.

When applying for the AIT PIN, it is essential to specify your South African tax residency status. Non-resident taxpayers must submit the following details to SARS.:

• Confirmation of the termination of South African tax residency, including the date of transition (Non-Resident Confirmation Letter from SARS).
• A detailed Capital Gains Tax Calculation schedule that outlines any tax liabilities related to the deemed disposal of assets as of the day before tax residency ends.

Additionally, your AIT PIN application must confirm the following:

• Whether you are a beneficiary of any trusts, whether local or foreign.
• Whether you possess a direct or indirect shareholding of 20% or more in any legal entity, whether local or foreign.
• Whether you have existing loans to a trust, whether local or foreign.

Navigating South African expat tax and the two pot retirement system

While the new system offers more flexibility, it also comes with potential tax implications that you’ll need to consider. The taxation of withdrawals from the savings pot and lump sum withdrawals upon retirement can significantly impact the amount you ultimately receive.

The introduction of the two pot system represents a significant shift in South Africa’s approach to retirement savings. For expats, it offers new opportunities to access funds and manage your retirement savings more flexibly.

As you navigate this new landscape, remember to stay informed about the latest developments, seek professional advice when needed, and take a proactive approach to managing your retirement savings. By doing so, you can ensure that you’re making the most of the new two pot system while securing your financial future, no matter where in the world you call home.

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