REUTERS/Andrew Boyers
REUTERS/Andrew Boyers

Retirement savings and emigration – What to know

By Martin Hesse Time of article published Sep 7, 2020

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Recent articles in the media warning South Africans who are thinking of emigrating that proposed amendments to the tax laws could prevent them from accessing their retirement savings may have caused unnecessary alarm, according to Jenny Gordon, the head of technical advice on investments, product and enablement at Alexander Forbes.

In a recent circular to the company’s financial adviser network, Gordon says that in the Budget this year, the National Treasury indicated that the concept of emigration as recognised by the South African Reserve Bank, widely referred to as “financial emigration”, will be phased out, and will be replaced by a more stringent financial verification process. As expected, she says, proposals in line with this intention appear in the draft Taxation Laws Amendment Bill (TLAB). The laws, as amended, are due for implementation on March 1 next year.

The types of retirement funds affected by the proposed changes are retirement annuities (RAs) and preservation funds.

RAs: You cannot access your funds in an RA until the age of 55, at which time you may take up to a third of the benefit in cash, and must use the rest to buy a pension. (If the value is less than R247 500, you can withdraw the entire amount.) Currently, says Gordon, the Income Tax Act permits a member of an RA below the age of 55 to take a full withdrawal when officially emigrating from South Africa, subject to taxation. Depending on the double-taxation agreement with the country to which you are emigrating, tax will be paid either in South Africa before payment or in the new country of residence. This right of withdrawal is not extended to members who are living outside South Africa but have not officially emigrated, regardless of how long they have lived abroad.

Preservation funds: Unlike an RA, if you have money in a preservation fund, you are entitled to one withdrawal before retirement (excluding where a deferred benefit has been transferred to a preservation fund), subject to taxation. In most cases, Gordon says, if you are leaving the country to live abroad, you can take a normal withdrawal in cash of the full amount and need not rely on the emigration benefit. However, you may have already exercised that right, or it may contain a deferred benefit (see “Definition”, below). In such instances, the same withdrawal rules as an RA apply: on retirement at age 55 or later, you can take one-third in cash and the rest must be used to buy a pension. (If you are a member of a provident preservation fund, as against a pension preservation fund, you can take the full benefit as cash at age 55.)

If you are emigrating, the emigration rule applicable to RAs also applies to members of preservation funds who have already exercised their one right of withdrawal before retirement or whose benefit is a deferred one.

How it will affect you

Gordon says there is a proposal in the draft TLAB for the emigration rule to be substituted by a non-resident test, which will require you to be a non-resident “for an uninterrupted period of three years or longer” to qualify for the rights previously extended to emigrants.

She says: “It is important to note that this is a draft bill and representations will be made on the proposals. The final legislation might be shaped or revised flowing from representations by interested parties. But there is no guarantee. “In its draft form, it appears that RA members who leave South Africa to live abroad will only be able to withdraw their full benefit in cash if they are non-resident for an uninterrupted period of three years or longer.”

Gordon points out the amendment may benefit a number of members who are non-residents but have not officially emigrated.

“Many South Africans have been living outside the country far longer than three years, but, due to their not having officially emigrated, have been unable to exercise the emigration benefit of a full withdrawal. They have only been able to retire with one-third in cash. Under the proposed amendment, a full cash withdrawal will be available to those members too.”

Regarding pension preservation funds, Gordon says it is important to note that if you still have a right of withdrawal from the fund, you can exercise this right at any time, regardless of whether or not you are a resident.

If you have already exercised the right of one withdrawal prior to retirement while you were a resident, you will be affected by the proposed change – in other words, you will need to be a non-resident for an uninterrupted period of three years to make a full pre-retirement withdrawal. This does not affect your right to retire from the fund at 55 and take one-third in cash and buy a pension with the rest.

Like those of an RA, members who have been non-resident for three years or more will be able to take a cash withdrawal, without the requirement to emigrate.

If you are a member of a preservation provident fund and have already made your single withdrawal, at 55 you can withdraw the entire benefit in cash. If you are younger than 55, you will also be subject to the three-year rule.


Gordon says some articles created the impression that you had a seven-month window period (until March 1, 2021) to emigrate and withdraw your retirement funds, failing which you would have no access to your funds on leaving the country.

“As set out above, that is a misconception. The three-year delay would be applicable in very limited situations, but at worst, it would be a three-year delay. The silver lining is that a right of withdrawal might be conferred on non-residents who have already been non-resident for three years but have not officially emigrated, which was not available to them previously,” she says.

She says there are some concerns worth noting, and these will be raised by industry bodies when comments are made on the draft TLAB proposals.

One question is whether someone who has officially emigrated should still have to comply with the three-year rule.

Another is that emigrants might require earlier access to retirement funds in order to settle into their new country of residence.

“There are many questions surrounding the proposed changes to the concept of emigration generally, which have a bearing on other aspects of financial planning. For example, we need to understand how it will affect inheritances and beneficiary nominations to non-residents,” Gordon says.


Deferred benefit: On retiring from your employer, you may remain in your retirement fund and defer taking your benefit. This is called a deferred benefit. A deferred benefit may be transferred to a preservation fund or a retirement annuity fund, from which you may only retire.


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