Question:
I am thinking of emigrating to the UK next year and would like to know the best way to handle my pension. Is there a way to reinvest it in the UK without having to pay tax here?

Answer:
I am assuming that the pension you mention is an actual pension fund since you refer to reinvesting, which I’m assuming refers to the accumulated capital in the fund and not a pension income that you are receiving.

I therefore take it that you will be resigning from your current employment prior to actual emigration. What this means is that you will have a number of options available regarding your accumulated pension fund interest.

If you resign and withdraw and remain in SA, you will have few options available that would preclude you from paying tax (e.g. transferring the benefit to another pension fund, retirement annuity fund or pension preservation fund).

Since you are in fact resigning and then emigrating, your options are unfortunately more limited. As far as transferring the benefit goes, you will not be able to transfer to a pension or similar fund in the UK. Transfers are only allowed to funds approved in terms of the SA Income Tax Act — a requirement that clearly cannot be met by a fund registered in the UK and in terms of UK legislation.

You may still transfer the benefit to a South African pension preservation fund or a retirement annuity fund, meaning the accumulated benefit will be in a retirement fund based in South Africa. You will then be able to retire from these funds at some future date and your retirement options will have to be considered in terms of South African legislation.

If your aim is to reinvest in the UK, your only option will be to elect to take the cash option on withdrawal from your current fund. Unfortunately, when exercising this option the cash benefit will be subject to taxation. As the legislation currently stands, you are likely to receive an amount of R1800 tax-free with the balance taxed at your average rate of tax (which is usually slightly lower than the marginal rate at which your other income is taxed). The fund will pay the after-tax amount to you. This amount will form part of all your assets considered on emigration.

On emigration, a person may only take R2-million (or R4-million per family unit) abroad. There is also an allowance for exporting household and personal goods as well as motor vehicles. Finally there is a cash allowance that may be taken. Any funds or assets in excess of these amounts will be held in what is called a 'blocked account'. The allowances may be exceeded, but in such a case a 10 percent penalty will be payable on any excess moved abroad. All funds remaining in South Africa in the blocked account may be used in a variety of ways here through the Authorised Dealer who controls the account.

What this all means for you practically is that, although you may withdraw the benefit from the pension fund, you may not necessarily be able to take the funds with you abroad — this will depend on the total value of all your assets.

You may want to consider engaging with a Certified Financial Planner to look at your situation holistically. Certainly dealing with your accumulated pension benefit is a major factor to consider with a view to emigrating. Keep in mind though that you may well have assets remaining in a blocked Rand account in South Africa after emigration and you should plan how best to manage these assets into the future.

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