Emigration and your retirement fund

There is ongoing uncertainty on how retirement investors can access their savings on emigration. Given our country’s history of exchange controls and the restrictions that apply to retirement savings, concern on this matter is understandable.

In the past, the South African assets (including retirement savings) of persons emigrating from this country were ‘blocked’ and had to be handed over to an Authorised Dealer. These assets could not be taken out of South Africa without Reserve Bank approval, only the income earned on these assets.

These rules no longer apply. Nowadays, an emigrating family unit will qualify for a foreign capital allowance of up to R20 million per calendar year, in addition to a travel allowance applicable to each member of the family unit (R1m per individuals over 18).
The cash transfer to an overseas account still requires Reserve Bank approval. You must send a request addressed to the Reserve Bank that includes your emigration number (per your emigration approval), the amount to be transferred, the balance of your remaining assets in South Africa, and the name of your authorised dealer. Any assets exceeding the above limits must still be held in a non-resident bank account.

Even without formal emigration, individuals in good standing and over the age of 18 years can invest up to R10 million in their name outside the Common Monetary Area (CMA-Lesotho, Swaziland and Namibia), per calendar year, on top of their the R1 million annual travel allowance available to all persons over the age of 18.

Presently, cashing in your retirement savings is relatively simple if you belong to your employer’s pension or provident fund. On resigning, you simply withdraw from your employer’s pension or provident fund. The proceeds will be taxed according to the withdrawal lump sum tax table, and you may then invest the balance outside South Africa, according to the above exchange control limits.

If you have reached the minimum retirement age stipulated by the fund rules or legislation, you can also choose to retire at that point, and benefit from the more favourable retirement lump sum tax table. But matters may then become slightly more complicated, depending on whether you are a member of a pension or a provident fund.

If you belong to a provident fund, it remains straightforward as you have the option to take the entire amount as a cash lump sum. But if you retire from a pension fund, you are obliged to invest at least two-thirds into an annuity, either a compulsory or a living annuity.

If you purchase an annuity – either a living or guaranteed annuity – the underlying assets cannot be converted back into a cash lump sum. (A guaranteed annuity can never be converted back into the cash, ever; with a living annuity, any balance can be paid out as a cash lump sum to the nominated beneficiaries only when the annuity holder dies). You will therefore be left with an annuity that pays out in South Africa. The annuity income is deemed to be from a South African source and will therefore be taxed locally per the standard income tax tables. The onus will then be on you to expatriate these proceeds on a monthly or annual basis, and to invoke any applicable double-taxation on the other side. Expatriating funds in this way is costly and an administrative hassle, as you have to apply for each transfer separately.

The bottom line for emigrating pension fund members who don’t want to leave their money behind: resign before you reach your fund’s normal retirement age, so to that you retain the option to cash out.

Generally, you do not have the option to withdraw from a retirement annuity fund. You may not access your funds before the age of 55, unless the value of your benefit falls below a limit specified by the Minister (currently R7, 000), you qualify for reasons of ill-health or you decide to emigrate. You may only ‘retire’ from the fund from the age of 55 years. If you retire, you must purchase an annuity with at least two-thirds of your proceeds (unless the annuity value is less than R247,500), with the same consequences as buying an annuity out of your pension or pension preservation fund proceeds.

To take your RA savings abroad, you need to emigrate formally and you need to do so before you reach your fund’s specified retirement age. Formal emigration requires you to sign off with SARS, which triggers capital gains tax on all your capital assets (other than on your fixed property located in South Africa). Once all your tax affairs are in order, you will receive a tax clearance certificate that will entitle you to withdraw from your RA. The proceeds will be taxed according to the withdrawal lump sum tax table. If you are invested in a life company RA, you may also incur ‘termination penalties’ for withdrawing early (depending on the contracted investment term and fund rules).


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