Planning to emigrate? New laws will affect your retirement benefit

Emigrating is a costly exercise. While the debate on whether the grass is or isn’t greener on the other side is endless, the cold, hard reality is that when you leave the country there are rules and tax implications for your retirement fund benefit.

Expected changes to the tax laws in March this year will allow retirement savers who have used a preserver to take their savings out of the country on emigration, but fails to address the difficulties faced by retired people using living annuities.

According to Jenny Gordon, head of retail legal at Alexander Forbes, the expected changes will offer members who emigrate before they retire more flexibility to withdraw their retirement funds when they leave the country.

There are various ways people leave SA to live abroad. You can officially emigrate and cease to be a South African resident; or merely work abroad and maintain your South African status. Temporary South African residents may leave to go back to their home country, or another one. Each of these have different rules and implications.

Only South African citizens and permanent residents qualify to officially emigrate, and they can take certain emigration allowances out the country.

If you leave SA to live in another country but do not officially emigrate, pending approval by the South African Reserve Bank you are still considered a “country resident” and do not qualify for the emigration allowances. You will, however, continue to qualify for the investment allowances afforded to country residents, Gordon says.

“A member who emigrates is entitled to have a pension paid to them in the country of emigration,” says Gordon, adding that a fund member may decide to take the pension benefit in cash.

Temporary residents who have temporary visas to live in SA do not qualify to emigrate because they were never citizens or permanent residents. However, they are usually allowed to take their funds out when they leave SA, says Gordon.

Gordon outlines four specific scenarios:

Emigrating before retirement age while working for an employer:

• If you are a member of an employer pension or provident fund before normal retirement age and decide to emigrate, you may withdraw your benefit. There is no restriction.

 Retirement annuity (RA) member emigrating before retirement age:

• A member of an RA fund is not usually allowed to withdraw from an RA before the age of 55, and on retirement, is only permitted one third of the benefit in cash. The rest must be used to buy a pension. An exception applies if you officially emigrate or relocate on the expiry of a temporary resident visa. In this case, you may withdraw the full capital amount.

 Emigrating while a member of a pension preservation fund:

• Currently, a member of a pension preservation fund is allowed one right of withdrawal before retirement. However, with effect from March 1 2019, the emigration benefit that applies to RA members will be extended to members of pension preservation funds. (Provident preservation fund members can withdraw the full amount in cash.)

 Relocating to another country but not officially emigrating:

• If a citizen or permanent resident relocates without emigrating, a withdrawal benefit of the full lump sum is not permitted, and the member may only retire from age 55.

Gordon advises that you always consult your financial adviser and the exchange control department of your bank as there are tax implications which are dependent on where you are tax resident at the time of a withdrawal. 

An important exception 

Says Gordon: “It is important to note that this does not apply to pensioners who are already drawing a pension or annuity income. Pensioners may have their retirement income paid to them in the country of residence but may not access the underlying capital.”