Accessing your retirement savings when you emigrate

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Increasingly, South Africans are considering making a permanent move overseas. Emigration data from BrandMapp reveals that 51% of all South Africans have at least considered a future outside of the country. 

Emigration is a significant life event and, as is the case with all major life events, it should be carefully considered. “The decision should be taken with a clear understanding of all of your options, as well as the relevant risks and benefits,” says Alan Wellburn, Head of Wealth Management at Standard Bank Wealth and Investment SA.

Comprehensive financial planning is key

“Your financial planning should consider all the changes to your financial needs and the consequences of your planned emigration,” says Wellburn. “The use of financial modelling tools can remove some of the uncertainty in this regard. They can be used to formulate a plan that helps you to transition from one country and currency to another, and can assist you to achieve your financial goals.

“It is also important to get appropriate tax advice relevant to your personal circumstances, as emigration has specific disclosure requirements and tax consequences on exit,” he continues. “Furthermore, it is critical to understand the consequences should you change your mind and return to South Africa permanently, or increase the number of days you are present in South Africa. This is more common than one would imagine.

“If your intention is to emigrate and never return to South Africa, you will have little need for assets and investments in South Africa, so part of your financial strategy should cover externalising these assets and investing them appropriately at your chosen destination or in other favourable jurisdictions.”

Wellburn says: “When considering emigration, part of the financial planning should also include any retirement savings held in an investment regulated by the Pensions Fund Act, such as a retirement annuity, pension fund, provident fund, pension preservation fund or provident preservation fund. You would also need to consider savings regulated by the Long-Term Insurance Act, such as a living annuity or life annuity.”

Residency test and the three-year rule

The rules and regulations around accessing certain retirement savings on emigration were simplified in 2021. The previously cumbersome emigration process, which involved applications to the South African Reserve Bank as well as the South African Revenue Service (SARS), was replaced with a “residency test”, which came into effect on 1 March 2021.

This residency test requires a member to prove that they have not been resident in South Africa for an uninterrupted period of three years before they can access their retirement savings. In other words, if you emigrate now, you will have to wait three years after leaving South Africa to be able to access your retirement annuity fund or preservation fund where you have already made use of your once-off withdrawal. 

This rule does however apply retrospectively, and if someone left South Africa more than three years ago and can provide the administrator with the necessary proof, they can access their retirement annuity funds and preservation funds and move the net proceeds out of South Africa.

Individuals who have already officially emigrated or whose emigration applications were already submitted by 1 March 2021 and approved by 27 February 2022 will not have to wait out the three-year period.

“There has been much discussion about the new ‘three-year emigration rule’,” says Wellburn. “One of the arguments against the rule is that people emigrating often need to access their retirement annuities and preservation funds to help cover their relocation costs and establish themselves in the country they have emigrated to.

“However, the three-year rule does give the regulator some assurance that the intent to emigrate is substantiated and permanent, and that the individual is not just emigrating to access their retirement savings,” he says.

Options for retirement savings on emigration

Wellburn advises looking at your options in terms of emigrating prior to the age of 55, as well as your options post the age of 55, as there are some nuances. “It is also important to consider the tax consequences and pay attention to the difference between the SARS tax tables for ‘Tax on Lump Sum Withdrawal Benefits’ and ‘Tax on Lump Sum Retirement Benefits’,” he says. “Any previous withdrawals or lump sums taken should also be taken into account.”

Options prior to age 55

Prior to the age of 55, you can access your pension or provident fund savings on the termination of your employment. The withdrawal will be subject to tax as per the withdrawal benefit table.

Additionally, you can access your pension preservation and provident preservation fund by using your “once-off withdrawal” if you haven’t already used it. If you have already used the one withdrawal, then you can access these funds if you can prove that you have not been resident in South Africa for an uninterrupted period of three years (as per the three-year rule). The withdrawal will be subject to tax as per the withdrawal benefit table.

Prior to 55, you can access your retirement annuity fund if you prove that you have not been resident in South Africa for an uninterrupted period of three years (also as per the three-year rule). The withdrawal will be subject to tax as per the withdrawal benefit table.

Options post age 55

Post the age of 55, there are two options with regard to your pension fund:

You can choose to retire from your pension fund and take one third as a lump sum on retirement and transfer the balance to a living annuity. The one third would be taxed as per the less onerous retirement benefits table and could be moved offshore immediately. The other two thirds would have to be used to purchase a living or life annuity. If you want to access the full amount in your pension fund, you would need to withdraw from the pension fund. The withdrawal will be subject to tax as per the withdrawal benefit table.

With a provident fund or provident preservation fund, you could take the full benefit as a lump sum on retirement, which can be taken abroad (contributions prior to 1 March 2021). The lump sum will be subject to tax as per the less onerous retirement benefit table. 

Post the age of 55, there are a few options with regard to retirement annuity funds and pension preservation funds:

You can retire from the funds and take one third as a lump sum on retirement and transfer the balance to a living annuity. The one third would be taxed as per the less onerous retirement benefits table and could be moved offshore immediately. The other two thirds would have to be used to purchase a living annuity or life annuity. If you want to access the full amount of your retirement annuity, you would need to prove that you have not been resident in South Africa for an uninterrupted period of three years. The withdrawal will be subject to tax as per the withdrawal benefit table.You could access the full amount of your pension preservation fund by using your once-off withdrawal if you haven’t already used it. If you have already used the one withdrawal, then you can access these funds if you prove that you have not been resident in South Africa for an uninterrupted period of three years (the three-year rule). The withdrawal will be subject to tax as per the withdrawal benefit table.

Currently, one cannot access the funds held in a living annuity on emigration. You can however, get more capital out of a living annuity by increasing your income withdrawal to the maximum amount allowed of 17.5%. This withdrawal rate can be changed on the anniversary date of your living annuity.

It pays to plan ahead

“A well-planned emigration can dramatically reduce the associated uncertainty and anxiety,” Wellburn says. “If not planned properly, it can potentially have a detrimental impact on your financial future. It is therefore vital to get appropriate advice to ensure that you are aware of all the options and consequences. This can optimise the process to ensure that it turns out to be the positive life event you hoped for.”

Disclaimer: 

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