Lockdown looms for SA expat pensions

South Africans who have recently financially emigrated but still have retirement and pension funds in South Africa, run the risk of them being effectively ‘locked down’ for three years unless they transfer out their funds before 1 March 2021.

This is the result of changes announced in the draft Taxation Laws Amendment Bill on 31 July 2020, which are designed to make it even harder for people to take their funds out of the country. Expats can currently withdraw their retirement funds before their retirement age provided they have financially emigrated from South Africa. From 1 March 2021, however, they will be required to demonstrate they have been non-tax resident in South Africa for at least three consecutive tax years.

Leah Mannie, a pensions consultant at Sovereign Trust (SA) Limited, said expats should be concerned 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 damage their hard-saved monies.

“The real and ever-present danger 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 bailing out state-owned enterprises,” said Mannie. “Those who have already left South Africa should, if they have not done so already, examine their options for any retirement funds they have left behind.”

Prospective expats, particularly those retired or close to retirement, should consider funding an overseas account in lieu of contributions to an SA-based retirement annuity or pension. “While they would not get the tax advantages of local retirement annuities, this would at least leave the expat with accessible funds to settle them in their new country of residence,” said Mannie.
Typically, an investor would house their foreign investment in an overseas discretionary trust, then draw on the funds once they had completed their relocation. Another option would be to look at establishing an overseas retirement plan while still living in South Africa, and fund the plan with after-tax funds while pursuing emigration through the normal channels. The overseas retirement plan route is more popular due to the ease of establishment, lower cost and clear rationale for funding. These overseas retirement plans are typically based in stable and well-regulated jurisdictions, such as Guernsey or the Isle of Man.

“Retirement planning is never a ‘one size fits all’ situation: it all depends on the specific circumstances and retirement goals of each person. But forward planning pays off, especially at this time,” said Mannie.