If you have been doing some research into how emigration impacts on retirement annuities in South Africa, you will probably have stumbled across the fact that most South Africans end up cashing in their retirement annuity (RA) when leaving the country. Most people desperately need the funds to make their emigration possible in the first place. That being said, the question begs to be answered; can I cash in my retirement annuity early in South Africa, or is that only allowed if I am emigrating? Many – or should we say most – South Africans are asking this very question right now! To get to the answer, we need to do a little delving into the rules that govern the paying out of a retirement annuity. Having some understanding of South African retirement annuity fund rules can be very helpful.
Retirement Annuity Withdrawal Rules in South Africa
According to the rules, you can withdraw a part or all of your retirement annuity early in South Africa, whether you are emigrating or not, but there is a catch. You can’t just withdraw your funds and go on your merry way. There is an early annuity withdrawal tax penalty imposed on those who don’t wait until retiring age to withdraw their funds. It’s a little different if you are withdrawing your RA and staying in the country than if you are withdrawing your RA and emigrating though.
Let’s break it down a little, for easier understanding.
- Withdrawing RA funds when financially emigrating
A financial emigration expert can assist you with withdrawing your retirement annuity early when emigrating, but that doesn’t mean that you’ll get away unscathed with the full lump sum. There are always penalties imposed when the conditions of a contract are broken or stretched, and that’s exactly what you are doing when requesting an early withdrawal of your RA. While there is no penalty for cashing in your retirement early when emigrating, the lump sum is seen as a “lump sum benefit” and is subject to taxation in South Africa.
According to retirement annuity withdrawal rules in South Africa (specifically those that apply in 2020) the first R25,000 of the amount drawn will not be taxed. If you withdraw more than that amount, you will be taxed on a progressive scaled (starting at 18%) on the balance.Keep in mind that the rules can change from year to year, so it is best to check what the latest rules are before simply expecting the same rules as the previous year to apply.
- Withdrawing RA funds when remaining in the country
You don’t have to emigrate to access your retirement annuity early. There are 2 instances in which you can withdraw a part or full amount of the retirement annuity: 1) you are retiring early and 2) you have resigned from your job. In both these instances, you can withdraw from the fund.
If you are retiring, you can only cash out up to a third of the accrued funds and the balance must be used to buy an annuity. It’s different if you have resigned from your job (even if you are starting a new one) as you can withdraw the full amount, but the tax penalty will be hefty. In fact, it is higher than the tax that would be charged for retiring on the amount.
Those who cash out their retirement annuity can expect to lose out on the benefits of compound interest too.
Why South Africans Want to Cash Out Their Retirement Annuities Early
Many South Africans want to cash out their retirement annuity early because they want to use the funds to emigrate. But this is not the only reason why so many people are looking into cashing out their annuities early. Some South Africans need funds to start a new business or simply survive. With unemployment rates souring, some would say that it’s best to leave your retirement annuity where it is, unless you still want to be looking for gainful employment after you retire.
Fair Warning Regarding Retirement Annuity Rule Changes Planned for 2021
With 2020 at its end and 2021 on the horizon, South African expats already living overseas and with the intention of continuing to do so are encouraged to formalize their financial emigration as soon as possible as the rules regarding withdrawing RAs while in another country are about to change. New retirement annuity rules South Africa say that those who have not formalized their emigration and processed the withdrawal of their retirement annuity by March 2021 will have to wait for 3 years before being able to access their funds. The time to act is now!
Get Expert Advice & Guidance With Early Retirement Annuity Withdrawals at FinGlobal
When trying to wade through the confusion and red tape that often surrounds retirement annuity withdrawals, reach out for the expert advice and guidance of a FinGlobal consultant. We provide premier advice to South African expats across the globe. Understanding the retirement annuity withdrawal rules in South Africa is our job, and we will ensure that we put this understanding to good use when assisting you with formalizing your financial emigration and accessing the funds in your retirement annuity. We are up to date with the latest rule changes regarding retirement annuity withdrawals and encourage all those who haven’t finalized their emigration and withdrawn their RA funds yet, to do so with urgency.
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I would like to make an early withdrawel of R50 000 on my retirement annuity. How do I proceed and what costs are involved?
Hi Sonya. Thank you for your query. Given you are currently residing outside of South Africa, you can please submit your contact details via our website one of our financial consultants will contact you to see if they can assist: https://www.finglobal.com/please-call-me/