How does it work?
A retirement annuity is a tax-efficient method to save for retirement. It offers the investor an opportunity to select a suitable, long-term investment portfolio, and then to contribute to these investments every month. RA’s are typically subscribed to by investors who do not have access to a formal employer pension fund (e.g. the self-employed), or by those wishing to invest in retirement savings in addition to their formal-employment pension or provident fund.
Government encourages the utilization of these type of products (to provide for old age) by way of built-in tax incentives. However RA’s come with restrictions on when and how the savings can be accessed: The (legislated) earliest retirement age for RA’s is 55, regardless of the inception date of the investment.
Therefore, in order to access some cash out of the policy one would have to wait until your 55th birthday. Once you turn 55 you can elect to either:
· Leave the funds in the RA and let it roll over until you are ready to withdraw at a future date;
· Cash in the whole policy but only if it is of a value less than R247,5k in one policy (or in multiple policies as long as their cumulative value does not exceed R247,5k);
· Cash in one third (1/3rd) of the policy value (tax free if this portion is less than R500k) and invest the balance (2/3rds) permanently in a Living Annuity. However the remaining funds (two thirds) invested in a Living Annuity are effectively stuck there forever. These funds can be withdrawn at a maximum rate of 17,5% per annum, until depletion (or death). Such withdrawals are taxed at normal salary tax scales.
The ONLY alternative:
The Tax Act was amended in 2008 to allow for the early and full benefit withdrawal of RA’s by South African citizens who have settled abroad, and whose intention at that point is not to return to South Africa as a permanent resident in the future. (They will therefore not become a burden on the SA fiscus in their old age.)
The mechanism through which this is managed is a prescribed administrative procedure called Formal Emigration. It essentially changes the residency status of an individual from Resident to Non-Resident, and formally records their new status with the South African authorities (SARB, SARS, etc.). At the end of the Formal Emigration process the insurer is allowed to cash out the Formally Emigrated individual’s Retirement Annuity, IN FULL AND AT ANY AGE, and their bank is allowed to transfer the proceeds abroad.
This is where Expatri8 comes in: we provide all the administrative tools (information, individually tailored processes, all neccessary documents) and assistance for expats to cash out their own policies:
- simple: Once you understand the process the red tape is easy to navigate, and we hold your hand all the way.
- cheap: And if you do not succeed, we will return the small fee for our service.
- safe: We provide the tools for you to do it yourself. We do not act as intermediary, we do not ask for, nor hold, any of your personal financial information, and there are no hidden costs.
Read more here: How will E8 assist me?