SA investors should shed inner conflict about investing ‘offshore’

South Africans looking to make proper provision for their retirement should consider utilising their full annual foreign exchange provisions and should choose the right offshore (overseas) investment options to protect themselves from a volatile economic and political environment.

That was the message from Sovereign Trust SA’s seventh annual International Retirement Seminar, held via webinar in October. The seminar brought together a range of experts in the field of offshore retirement planning, including financial advisers and specialists in international pension planning and pension structures.

“Many South Africans still feel conflicted about investing offshore, partly because they don’t understand the differences between local and international retirement plans,” said Richard Neal, Managing Director of Sovereign Trust SA.

“While offshore retirement funds, like those falling under Guernsey’s 40(ee) regulations, provide a range of advantages over South Africa-based funds, it is vital that potential investors understand the differences between local and international options before committing their assets,” said Neal.

In South Africa, there are three primary retirement provisions – pension funds, preservation funds, and retirement annuities – which are each funded in specific ways. However, they are limited in terms of how much can be invested tax efficiently in any given financial year, and how and where the funds can be invested. There are also restrictions as to how investors can take their benefits, with pension fund and retirement annuity holders having to annuitise two-thirds of their investments.

By comparison, Guernsey 40(ee) schemes are tax exempt for non-residents and allow contributions to be made in a range of forms. However, the major differences relate to how the investments can be made and how benefits can be drawn: there are no geographic or other restrictions on investments, and members can take benefits as and how they prefer, after the age of 50.

“It is also important that local investors realise that international retirement plans are not in breach of general anti-avoidance rules (GAAR), as long as they are recognised as bona fide pension planning schemes, and are administered and run in a proper manner,” said Neal.

For South Africans who have recently financially emigrated, but still have retirement and pension funds in South Africa, the need to transfer their funds into overseas-based pension accounts has become even more pressing, with new tax laws effectively locking their funds in the country for three years.

Mannie 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 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.”