1)Can I choose when to cash in my retirement annuity?
South African residents will generally gain access to their retirement annuities from age 55. Prior to 1 March 2021 you could not access your retirement annuity unless you were 55 years of age, the fund was worth less than R7,000, you became permanently disabled or you followed the formal financial/tax emigration process with the South African Reserve Bank.
Since 1 March 2021, the law around encashment of retirement annuities has changed.
The law now states that if you wish to access your retirement annuity you may only do so if you have reached 55 years of age, the fund value is less than R15,000, you become permanently disabled or if you have been a non-resident for South African tax purposes for a period of three consecutive years on or after 1 March 2021.
There are three possible scenarios:
If you haven’t left South Africa yet
You need to tax emigrate when you leave, wait for three years and then prove that you are no longer tax resident before you can encash your RA.
If you left South Africa within the past three years
You can only apply for tax clearance once you have completed the three years. Ensure your tax documents and affairs are up to date to make the encashment process easier once the waiting period has passed.
If you left South Africa more than three years ago
Apply for tax clearance, prove you have not been tax resident for three consecutive years and encash your RA.
2) What is financial/tax emigration?
Financial/tax emigration is the process of informing and changing your residence status with the South African Reserve Bank (SARB). It is only completed once you have achieved/been granted permanent residency status abroad. You will also need to meet the requirements stipulated by the South African Revenue Services (SARS) before your retirement annuity can be accessed (see point 1 above).
3) What is the process to finalise financial/tax emigration?
a. Complete an MP336 emigration form to apply for your foreign capital allowance.
b. Apply for an emigration tax clearance certificate (ETCC) to SARS to transfer your remaining assets overseas. This can be a lengthy process.
c. Submit the application to the SARB. Proceeds of the sale of your remaining assets in South Africa will be deposited into an account which allows you to transfer the funds abroad.
4) What happens if I left South Africa without financially emigrating?
If you left South Africa without formally recording your financial emigration and you want to access your retirement annuity, you will need to complete the paperwork to prove that you are a non tax-resident and wait for three years to access your funds.
5) What happens if I financially emigrate from South Africa after retiring?
Once you have reached retirement age, any post-tax lump sum that you choose to take will form part of your foreign capital allowance. The remaining funds must reside in South Africa and you will receive your monthly income from these funds.
6) Are there any penalties for encashment before retirement age?
There may be significant penalties, as much as 30% when you cash in a retirement annuity policy before retirement age. In addition, there are tax implications to take into consideration. The top rate of tax on retirement annuities is 36% so you should seek financial advice before making any such decision.
Advice from Blacktower Financial Management
Managing retirement finances can be complex. Our wealth management service provides a dedicated advisor to help you plan your financial strategy to achieve your present and future goals. We’ll work in partnership with you to identify the most appropriate investments and ensure you take advantage of all available reliefs. We will regularly review your position to help you achieve maximum return on your investments. Contact one of the representatives at our Algarve office today for your free, no-obligation discussion.
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