What you need to know about emigrating with your retirement annuity

So, you’ve decided to move abroad. You’ve secured yourself a new job, arranged accommodation for yourself and your family, and you’re slowly moving your assets to your new home.

But what will happen to your retirement annuity? JustMoney asked an attorney how you can legally move your retirement savings abroad.

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Financial emigration lets you encash the full amount

According to Reabetswe Moloi, attorney at Financial Emigration, you can withdraw your retirement annuity when you turn 55, or when you financially emigrate and your emigration has been approved by the South African Revenue Service (SARS) and by the South African Reserve Bank (SARB).

“It’s worth noting that even when you’ve reached the age of 55, you still won’t be able to encash the full amount. On the other hand, currently, if you financially emigrate, you’re able to encash the full amount at the conclusion of your financial emigration,” says Moloi.

New regulations could change this

However, Moloi points out that, based on the 2020 Budget Speech, the ability to withdraw from a retirement annuity may be restricted in the future.

“This is owing to the fact that the National Treasury announced it would be phasing out the SARB process of financial emigration as of 1 March 2021. Due to these amendments, the ability of individuals to withdraw their retirement annuity upon emigration would be reviewed,’ says Moloi.

She explains that as of 1 March 2021, the SARB process of financial emigration will involve a “more stringent verification process” which could trigger “risk management tests”.

“Consequently, there are suspicions that it may be more difficult – if possible at all – for individuals to withdraw their retirement annuity upon emigration after this date,” says Moloi.

How to withdraw your retirement annuity

Your first move is to request a withdrawal of your retirement annuity from your policy provider. Get in touch with your provider directly and explain that you intend to emigrate.

Moloi says that policy providers require the following documentation to submit a request to SARS and obtain a tax directive for the full value to be paid out in cash due to the financial emigration process:

• Attested MP336(b)
• ETCC
• SARB approval
• Tax residency certificate (your current country of residence)
• Latest SA bank statement – to prove that you have an open and active SA bank account

“Financial emigration experts are able to assist you to follow the correct steps and procedures if you wish to financially emigrate and withdraw from your retirement annuity,” says Moloi.

Funds must be received in a South African bank account

Moloi explains that the amount received from the withdrawal of a retirement annuity cannot be directly sent abroad into a foreign bank account.

“The funds received must be paid into a local South African bank account that is in the name of the policyholder. Consequently, such funds can’t be paid into the account of any third party – including a spouse’s bank account,” says Moloi.

She notes that if you undergo financial emigration, you’re still able to hold bank accounts in South Africa.

“However, the status of the bank account changes to a non-resident bank account. Therefore, the funds received from the withdrawal would be paid into an emigrant-, blocked-, or non-resident account of the policyholder,” says Moloi.

What financial penalties can you expect?

According to Moloi, financial emigration does not result in early encashment penalties if you elect to withdraw from your retirement annuity upon emigration. However, it must be noted that lump sum benefits received would still be subject to tax in South Africa.

“There are two different tax tables that are applied to lump sum benefits received, one being for lump sums received from a pension, pension preservation, provident, provident preservation, or retirement annuity fund on withdrawal. The other table applies to the receipt of such lump sums on death, retirement, or termination of employment,” says Moloi.

She explains that the withdrawal from a retirement annuity upon emigration falls within the first-mentioned tax tables.

“For the 2020 tax year of assessment, the first R25,000 of the withdrawn amount would be exempt from tax. Thereafter, any amounts received in excess of R25,000 will be taxed on a progressive scale starting at 18%,” says Moloi.

She adds that it’s worthwhile to note that the tax tables may be changed every year. Therefore, tax rates and consequences may differ on a year-to-year basis.

Thinking about emigration? Move your retirement soon

Moloi points out that it’s uncertain at this stage what the future holds for the financial emigration process.

“With the seemingly more onerous amendments to be implemented to financial emigration, South Africans working and living abroad who intend to remain permanently outside of South Africa are strongly encouraged to formalise their fiscal status as soon as possible,” says Moloi.

“Failing to do so may possibly result in them either no longer being able to benefit from withdrawing from the retirement annuities prior to reaching the age of 55, or it could mean that they would need to face a more stringent verification process and a risk assessment test before they can do so,” she says.