Retirement is the perfect time to close one chapter of your life and start another. With the kids out of the house, a mature financial portfolio and fewer familial responsibilities, many individuals and couples delay emigration to another country until retirement simply because it makes sense to do so. However, with work no longer tying you to one location, retiring overseas is an attractive endgame. If you’ve already retired or you’re close to retirement age, there are some things you need to know about your retirement income before you leave South Africa.
Retirement income: the facts about pensions and annuities in South Africa
If you’re planning on skipping the country, you’ll need to do a little extra financial planning before you emigrate from South Africa, particularly where:
- You are already receiving South African pension income because you have retired from some, of or all of your retirement funds and in so doing used at least two-thirds of those retirement annuity funds to purchase a living/life annuity, which essentially pays out a pension income to fund your retirement.
- You are the beneficiary of inherited pension income streams or you are contemplating leaving a chunk of your retirement funds in South Africa as retirement income to fund return trips to visit family.
Remember that upon retirement, you are obliged by law to apply two-thirds of your pension fund or retirement annuity to provide a pension income for your golden years that is paid out at an interval of your choosing – monthly, quarterly, or annually or bi-annually. Most retirees choose to use some form of annuity (living or life) provided by life insurance companies to fund this income, but it is also possible to choose that the payment comes directly from your retirement fund.
It must also be pointed out that the capital used to fund such pensions is not accessible, even after ceasing to be a tax resident, and it must remain in South Africa until the pension income ceases to exist should the pension recipient pass away. Furthermore, this pension income is payable only in South Africa, but once it has been paid into a local account, you can transfer the money offshore. This pension income is subject to tax in South Africa, because it is locally-sourced income and may also be subject to tax in the country to which you relocate.
Can I take my pension out of South Africa?
Long story short: you cannot take your pension out of South Africa. There is no transferability or transportability when it comes to South African pension income. If you’re already receiving income from a pension or retirement annuity, you will need to receive your pension income into a South African bank account, and from there you can access your money through an international transfer.
Can I transfer my South African pension to the UK?
Once you’re already receiving a pension income, you cannot move your pension funds to another country, like the UK. As mentioned above, you will need to carry on receiving your pension into a South African bank account and transferring this money abroad to the UK.
Can I transfer my pension to Australia?
Again, your pension is located in South Africa and legislation requires that it must be paid into a South African bank account. Once you’ve paid tax on your pension income, you are then able to transfer the remainder abroad to Australia via foreign exchange.
South African pension income: double taxation agreements and utilising tax exemption and tax relief correctly
If you are tax resident in another country, you will be taxed on your worldwide income, which includes pension paid out in South Africa. Most periodic annuities and pensions are taxed in full in South Africa first, regardless of tax residency. This means you’ll need to include the income in your South African tax return in your new country of residence as well. This might seem unfair, to be taxed on your pension twice, but South Africa is party to many Double Taxation Agreements, the purpose of which is to eliminate or mitigate double taxation. This means that you could be eligible for tax relief in South Africa, resulting in the annuity or pension income being taxable only in your new country of residence.
- To qualify for such tax relief in South Africa, you must apply to the South African Revenue Services using an RST01 application, which is an application by a tax non-resident for a directive for relief from South African tax for pension and annuity income, in terms of a Double Taxation Agreement. This application must be renewed annually.
- If you’ve already paid tax on your South African annuity and pension income in South Africa (fund administrators usually withhold Pay as You Earn (PAYE) before paying out income) you are eligible to claim a refund for the tax paid by submitting an RST02, which is an application by a tax non-resident for a refund of South African tax for pension and annuity income in terms of a Double Taxation Agreement.
FinGlobal: cross-border financial experts for South African expats
If you’re planning on leaving South Africa, and you still need to receive your pension income abroad, it is worthwhile to get proper, impartial financial advice as to your best options. For example, it could be more cost effective to change your pension income to receive an annual income, payable in advance. This means that you’ll only have to do one international transfer to receive your money, which could save you a lot of money in transfer and banking fees. Remember, that even if you cease to be a South African tax resident, or you become tax resident in another country, you’ll still need to submit a South African tax return because of your South African pension. FinGlobal can assist you with:
- International money transfers
- Pension Income transfers
- Tax refunds
- Tax clearance
Ready to simplify your cross-border retirement finances? FinGlobal is ready to take all the stress and headache out of your money moves. Leave us your contact details and we’ll be in touch!
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