What happens to your retirement savings when you emigrate?

Lana Visser | 24 January 2024

Lana Visser, is a paraplanner at Fiscal Private Client Services. She has a B.Com in Quantitative Management and is currently studying towards obtaining a Postgraduate diploma in Financial Planning.

As many South Africans are leaving the country to take a new job or start a life abroad, financial planners regularly get asked the big question: “What happens to my retirement funds now?”

In March 2021, there was a change in the legislation regulating access to your retirement savings as the emigration process changed. In this article, we look at how this impacts expats.

No more financial emigration

Prior to 1 March 2021, South Africans who left the country with no intention of returning could formally emigrate by applying for financial emigration.

Once this application had been approved and tax residency was confirmed with the necessary foreign tax authorities, your retirement funds could be withdrawn and the full benefit would be paid out in cash, subject to tax in line with the withdrawal tax table.

Since March 2021, this process has changed, and those emigrating no longer need to apply for financial emigration.

When can you access the funds?

Emigration now involves a process of terminating your tax residency with the South African Revenue Service (SARS).

This is done by way of an application with supporting documents proving to SARS that you are no longer resident in South Africa for tax purposes.

Once approved, SARS will issue you with a Notice of Non-resident Tax Status letter which also confirms the effective date from which you are no longer a tax resident.

This letter is important as you are only able to access your retirement funds if you have not been a South African tax resident for an uninterrupted period of three years, that is three years from this effective date.

For example, Mpho left South Africa six months ago to start a new job and she is now in possession of a tax residency certificate from the tax authority where she is working. Now she is able to apply to cease her South African tax residency.

If Mpho’s application is approved on 1 January 2024, she can then access her retirement fund benefits from 1 January 2027.

It is important to note, however, that if Mpho has not made use of her one withdrawal from a preservation fund, she will be able to withdraw the full benefit immediately, subject to the benefit being taxed.

Taxation of your retirement fund withdrawal

A withdrawal from your retirement funds is taxed according to the Retirement Fund Lump Sum Withdrawal tax table (see below).

The higher the amount withdrawn, the higher the tax bracket that will be applied. For example, if you withdraw R50 000, the first R27 500 will be tax-free and the balance of R22 500 will be taxed at 18%.

On the other hand, if you withdraw R1 000 000, the first R27 500 will be tax free, the next R698 500 will be taxed at 18% and the balance of R274 000 will be taxed at 27%.

Taxable income Rate of tax
R1 – R27 500 0% of taxable income
R27 501 – R726 000 18% of taxable income above 27 500
R726 001 – R1 089 000 R125 730 + 27% of taxable income above R726 000
R1 089 001 and above R223 740 + 36% of taxable income above R1 089 000

It is important to note, however, that this withdrawal amount will be aggregated with all previous lump sums received when calculating the tax. This means that if you received a retirement benefit after 1 October 2007, a withdrawal benefit after 1 March 2009 or a severance benefit after 1 March 2011, then it will be added to this withdrawal amount, and you will be taxed according to the total lump sums received over your lifetime.

What you need to withdraw

Product providers may differ in terms of their requirements or the fund rules, so it is always best to check what exactly the provider of your retirement fund will require.

However, as a start, ensure that you have your Notice of Non-resident Tax Status letter from SARS confirming the effective date of your non-residency and ensure that three years have lapsed since then.

It would also be helpful for you to have your tax residency certificate from the tax authority of the new country that you now call home.

Given that the emigration process has changed, it is important to consider if you are leaving South Africa for good or if you will simply be working abroad for an undefined period until you are ready to return home.

This affects how you cease your tax residency and what would be an appropriate course of action for your retirement funds. Speak to a tax advisor regarding your residency and to a financial planner regarding your retirement savings.