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Lockdown looms for SA expat pensions

26 October 2020 Sovereign Trust (SA) Limited

South Africans who have recently financially emigrated, but still have retirement and pension funds in South Africa, have until 1 March 2021 to transfer out their funds, or face the prospect of having them effectively locked for three years.

That’s the net effect of recent changes promulgated in the draft Taxation Laws Amendment Bill on 31 July 2020, which will make it even harder for people to take their funds out of the country. Currently, expats can withdraw their retirement funds before their retirement age as long as they have financially emigrated from South Africa. From 1 March 2021, however, they will need to prove they have been a non-tax resident of South African for at least three consecutive tax years.

Leah Mannie, a pensions specialist at Sovereign Trust (SA) Limited, an international trust and structuring company, said expats should be worried about leaving their retirement provisions behind in South Africa. Apart from an uncertain economic future, SA-based funds are more difficult to manage, and forced investment into prescribed assets could affect their hard-saved monies.

“The real and ever-present worry is that South African based retirement and pension funds will be forced to apportion a fixed percentage of their funds into government infrastructure projects and into bailing out state-owned enterprises,” said Mannie. “Those who have left South Africa should examine their options for their retirement funds left behind, if they have not done so already.”

What this means is that prospective expats, particularly those retired or close to retirement, should consider funding an overseas account in lieu of contributions to an SA-based retirement annuity or pension.  

“While they would not get the tax advantages of local retirement annuities, this would at least leave the expat with accessible funds to settle them in their new country of residence,” said Mannie.

Typically, an investor would house their foreign investment in an overseas discretionary trust, then draw on the funds once they had completed their relocation. Another option would be to look at establishing an overseas retirement plan while still living in South Africa, and fund the plan with after-tax funds while pursuing one’s emigration through the normal channels. The overseas retirement plan route is more popular due to the ease of establishment, lesser cost and clear rationale for funding. These overseas retirement plans are typically set up in stable and well regulated jurisdictions such as Guernsey or the Isle of Man.

“Retirement planning is never a ‘one size fits all’ situation: it all depends on the specific circumstances and retirement goals of each person. But forward planning pays off, especially at this time,” said Mannie.

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