SA investors have offshore retirement options – but need to choose wisely

South Africans looking to protect their retirement funds from the volatile rand and an uncertain economy have an array of offshore investment options at their disposal – but many pitfalls also lie in wait for the impulsive investor.

It is essential to choose an investment vehicle that delivers the necessary security, the necessary tax efficiency and the necessary succession planning. This was the overarching message to emerge from the sixth annual Sovereign Trust (SA) International Retirement Seminar, held recently in both Johannesburg and in Cape Town.

These seminars brought together a range of experts in the field of offshore retirement planning, including financial advisors and family trust lawyers who counsel clients on international pension planning and pension structures.

Keynote speaker Daniel Silke said South Africa remained in a tough economic and political position, with “huge hurdles” facing President Ramaphosa – not least the significant factions opposed to a reforming president. This had been a major contributor to the increasing outflow of funds from South Africa’s clearly concerned middle class.

As a combination of factors drives down the global economy, however, investment growth is hard to come by globally, said Joanne Baynham, director and head of investment strategy at MitonOptimal SA. The inversion of the US yield curve has bond investors worried about the real prospect of a recession in the US, which would have global repercussions.

“So what should I be doing with my money? Despite a tough market, people are too negative, and there are opportunities coming our way. There’s good value in the stock market – in fact, we’re better off buying equities than bonds right now. We also see opportunities in gold, even if it is slightly overbought now,” said Baynham.

With the long-term outlook for the rand remaining bleak, South Africans are getting poorer in real terms, said Andrew Rissik, managing director of the Sable International Group. “A lot of taxpayers are talking about having a ‘Plan B’, and the common themes we’re seeing with people looking to invest offshore are: tax efficiency, currency stability, accessibility to funds, security, succession planning and growth,” he said.

In spite of the ongoing turmoil around Brexit, UK property remains a popular retirement planning option, said Tim Mertens, chairman of Sovereign Trust SA. However, it’s critical to structure this type of investment correctly in the face of stringent UK tax legislation, using retirement vehicles like Qualifying Non-UK Pension Schemes (QNUPS).

Further complicating any retirement planning at the moment is the controversial so-called ‘Expat Tax’, which is due to come into effect in 2020. This will impact South Africans living and working in low-tax geographies around the world. A partial solution could be for employers to set up international employer-funded pensions, said Sovereign Trust SA director Richard Neal. But this will ultimately only serve to lessen the blow because all pension contributions earned by expats will still be taxed as a fringe benefit.

Although tax remains top of mind, South Africans’ approach to retirement structuring has not changed much in the three years since the recommendations of the Davis Tax Committee, which highlighted the need for further investigation of the use of offshore retirement funds.

Sean Gillease, the business development manager for Sovereign Trust in the Channel Islands, said international retirement plans by South Africans are continuing but it is now prudent to ensure there are clear reasons and justifications for doing so – and to ensure that members take some benefits after the maximum retirement age of 75.

For people who are not employed full-time, a well-structured trust offers some relief from onerous tax burdens, said trust specialist Jose Delgado, who maintains that trusts still have an important role to play in estate and retirement planning.

South Africans – the benefits of offshore bank accounts

Given the volatility of the rand, political uncertainty and a worsening economic outlook, South Africans could be forgiven for getting increasingly jittery about the likely impact on their financial health. It is no surprise then that Sovereign Trust (SA) has seen increased client interest in offshore bank accounts as a means to secure and protect capital.

There is no prohibition on South Africans opening a bank account offshore. Many South Africans have international transactional needs – both for business and personal reasons – but some are only aware of standard foreign currency banks accounts that simply allow the account holder to make and receive foreign currency payments.

An offshore bank account, in comparison, offers multiple benefits – the ability to receive payment for work done outside South Africa, to make international payments, to access international funds and, most importantly, to diversify assets and hedge against the volatile rand.

South African taxpayers are required to declare any offshore bank accounts. Any interest and income earned will need to be reported to the South African Revenue Service (SARS) and the relevant tax must be paid. The financial institution will itself be reporting your account automatically to SARS under the OECD’s Common Reporting Standard.

However, by using an offshore bank that is based in a highly regulated, transparent jurisdiction, you can feel secure that your money is safe and with multi-currency accounts usually coming as standard, transferring money between accounts should be fast and free.

A good offshore bank account should provide a highly personalised service, giving you round-the-clock access to your money through online and telephone banking and the highest service levels. It may also provide you with a wide choice of funds and investments that are not available in your home country, as well as more flexible lending and credit facilities.

The upside is that, although your details may not be confidential, your money will remain outside South Africa and you’ll never have to bring it back,” says Rone Silke, a consultant at Sovereign Trust (SA). “In terms of de-risking wealth, it is a completely legal and acceptable solution to escape the volatility of the rand.”

“When exploring the benefits of opening an offshore bank account, the key is to choose your preferred offshore banking institution by taking into consideration the minimum balance requirements, fees, reputation and tax jurisdiction.”

To open an offshore bank account, some banks will require face-to-face meetings with the account holder, whereas others are comfortable to work through a licensed service provider such as Sovereign. If you would like more information, please contact Rone Silke at Sovereign Trust (SA) on +27 21 418 2170 or by email.