Currently, individuals are able to withdraw their retirement annuity when they turn 55 or when they financially emigrate and their emigration has been approved by the South African Revenue Service (“SARS”) and by the South African Reserve Bank (“SARB”).
It is worth noting that even where an individual has reached the age of 55, they will still not be able to encash the full amount. On the other hand, currently, where an individual financially emigrates, he/she is able to encash the full amount at conclusion of their financial emigration. However, based on the 2020 Budget Speech, the ability to withdraw from a retirement annuity, may be restricted.
This is owing to the fact that the National Treasury announced that they would be phasing out the SARB process of financial emigration as of 1 March 2021. Due to these amendments, the ability of individuals being able to withdraw their retirement annuity upon emigration would be reviewed.
It was announced 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 post 1 March 2021.
What process must be followed to have an RA withdrawn for emigration?
The request must be made with the respective policy providers. The policy providers require the following in order to submit request to SARS in order to obtain a tax directive for the full value to be paid out in cash due to the financial emigration process:
- Attested MP336(b)
- SARB approval
- Tax residency certificate (country where they are currently residing)
- Latest SA bank statement – shows that they have an open an active SA bank account.
Financial emigration experts are able to assist individuals who wish to financially emigrate and withdraw from their retirement annuities to follow correct steps and procedures.
What kind of penalties or taxes will apply to this?
Financial emigration does not result in early encashment penalties where an individual elects to withdraw from their 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 of which one being for lump sums received from a pension, pension preservation, provident, provident preservation or retirement annuity fund on withdrawal and the other being for receipt of such lump sums on death, retirement or termination of employment.
The withdrawal from a retirement annuity upon emigration falls within the first mentioned tax tables. For the 2020 tax year of assessment, the first R25,000.00 of the withdrawn amount would be exempt from tax. Thereafter, any amounts received in excess of R25,000.00 will be taxed on a progressive scale starting at 18%. It is worthy to note that the tax tables may be changed every year therefore tax rates and consequences may differ on a year to year basis.
Does the money get paid out straight to a bank account in the country you’re emigrating to or can it be paid out to a local SA bank account?
The amount received from the withdrawal from a retirement annuity cannot be directly sent abroad into a foreign bank account. The funds received from the withdrawal of the retirement annuity must be paid into a local South African bank account that is in the name of the policy holder. Consequently, such funds cannot be paid into the account of any third party including a spouse’s bank account.
It is worthy to note that individuals who undergo financial emigration are still able to hold bank accounts in South Africa. However, with financial emigration the status of the bank account changes to non-resident bank account. Therefore, the funds received from the withdrawal from a retirement annuity would be paid into an emigrant/blocked/non-resident account of the policy holder.
What else should someone keep in mind regarding this?
What the future holds for the financial emigration process is uncertain at this stage, However, with the seemingly more onerous amendments to be implemented to the SARB process of financial emigration, South Africans working and living abroad who have a permanent intention to remain outside of South Africa are strongly encouraged to formalise their fiscal status as soon as possible.
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.