Expected changes to the income tax laws in March 2019 will allow members who emigrate before they reach retirement date more flexibility to withdraw their retirement funds when they leave the country.
There are a number of ways people leave South Africa to live in another country.
A member who emigrates is entitled to have a pension paid to him or her in the country of emigration. However, a fund member, before electing to draw a pension, might prefer to take the pension benefit in cash.
If a person was a member of an employer pension or provident fund before normal retirement age and decides to emigrate, the member may withdraw his or her benefit. There is no restriction.
A member of a retirement annuity fund (RAF) is not usually allowed to withdraw from an RAF before age 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 a member officially emigrates or the member relocates on the expiry of a temporary resident visa. In this case, the member may withdraw the full capital amount.
Currently, a member of a pension preservation fund is allowed one right of withdrawal before retirement. However, with effect from 1 March 2019, the emigration benefit which applies to RAF members will be extended to members of pension preservation funds. (Provident preservation fund members are allowed to withdraw the full amount in cash)
If a citizen or permanent resident relocates without emigrating, a withdrawal benefit of the full lump is not permitted and the member may only retire from age 55.
Advice from the Exchange Control department of your bank as well as a financial adviser should be obtained before a decision to withdraw is made. There are tax implications and the tax payable might differ depending on the timing of the withdrawal and where you are tax resident at the time of withdrawal.
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.