Question:
I am planning on eventual emigration from South Africa to Namibia. I currently have three retirement annuities (RAs) that I have made paid up a year ago. Two policies are over 10 years old and the other about seven years old.

I have heard that RAs can be paid out upon emigration — can you clarify this and what the process would be? Are there any other ways to get RA funds released prior to retirement?

Answer:
Retirement Annuity funds are governed by the Income Tax Act, Pension Funds Act and the rules of the respective funds. With many South Africans opting to emigrate and live abroad, legislation has been amended to allow persons to withdraw the full benefit of their retirement annuity funds subject to penalties that may apply from a product perspective.

Members of pension and provident funds always had the right to withdraw their benefit upon retrenchment or resignation.

Prior to this amendment members of retirement annuity funds could only withdraw their RA benefits upon death, upon permanent disability (mental or physical) or if the full fund benefit is less than R7000. In 2008 the legislature included the ability to withdraw a member’s benefit where the member emigrates to the list.

The benefit is only available where the member is formally emigrating and not merely staying in countries that the member enjoys joint citizenship with. In other words, one would need to have notified and obtained the necessary clearance from SARS as well as the South African Reserve Bank. The other condition is that the member must not have reached age 55 (this is where the RA funds ordinarily become 'available' albeit limited to 1/3 as a lump sum).

What is important to note is how this will be taxed. Withdrawing a benefit by way of either emigration or because the fund value is less than R7000 will be deemed as a withdrawal and taxed accordingly.

Withdrawal taxation is dealt with as follows:

As of 1 March 2009, tax on withdrawals changed substantially and was brought in line with the concept of a tax table in exchange for the old method of average rates. The first change was that the tax-free amount increased from R1800 to R22 500. All amounts exceeding R22 500 will be taxed according to a retirement fund withdrawal tax table. The withdrawal table is in the process of being incorporated into legislation and is therefore not law yet. The current version contained in the draft legislation is as follows:

• R0 to R22 500 — 0 percent

• R22 501 to R600 000 — 18 percent

• R600 001 to R900 000 — R103 950 plus 27 percent exceeding R600 001

• R900 001 and more — R184 950 plus 36 percent exceeding R900 001

Please note that this is different to how a benefit would be taxed should a person die or become disabled. These circumstances are seen as unavoidable and therefore treated more favourably as if the person was retiring.

When making any financial decision it is best to consult a Certified Financial Planner to determine how it will affect your overall financial plan, both now and in the future.

If you would like acsis to put you in touch with an independent financial planner, click here!

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