Question:
I have a retirement annuity (RA) with Liberty Life and an endowment policy with Sanlam and still contribute to both. I live outside of South Africa and am unlikely to return.

What are my options for cashing in on these policies? Should I wait for maturity or cash in now? What are the tax- and legal implications?

Answer:
The investments you mention are two distinct types of investment vehicles each with different rules and taxation implications.

You do not mention that you have formally emigrated so I am assuming you simply relocated without emigrating. Since you are still contributing to the investments I am further assuming that you are younger than 55 years of age.

Let us look at the retirement annuity first. As mentioned in a few recent articles, a RA as a savings/investment vehicle cannot be accessed before age 55 except in a defined number of instances. Nothing in the information you provide indicates that you qualify to withdraw your benefit before age 55. Since you cannot 'cash in' the accumulated RA benefit, your only option is to carry on contributing until that age. If you cease making contributions you may be subject to penalties as you initially contracted to pay premiums up to a certain age.

On reaching 55 you will then be able to access the RA as a retirement benefit. Up to 1/3 may be taken as a lump sum (subject to taxation) and the balance must be applied to purchase a compulsory annuity — a product that will supply an income for the life of the retiree/annuitant.

An endowment policy is a voluntary investment vehicle to which you are obviously still contributing in terms of your specific contract. Some essentials around an endowment policy are as follow:

• Access to the investment is limited within the first five years — the investor may only take one withdrawal and one loan against the policy.

• The amounts that may be accessed through such a withdrawal or loan are limited through legislation.

• The investment growth earned is taxed within the endowment vehicle itself and not in the hands of the investor.

• On expiry of the five-year period (or potentially a later maturity date if so contracted), the investor is able to make withdrawals free of tax — these may be partial withdrawals as and when required or a full disinvestment.

Therefore, once you are past the initial five-year period (or the potentially later maturity date that might be stipulated in your contract with Sanlam), you will be able to disinvest in full – in other words 'cash in' the policy. As with the RA, if you have contracted to pay premiums for a specified period and you cease paying those contributions prematurely, you are likely to be faced with penalties.

The benefits on both these policies will be paid into South African bank accounts. Accessing these abroad may likely be a stumbling block as it appears that you never formally emigrated. On emigration certain facilities become available to the emigrant that manage access to capital and income by the emigrant. Emigrants are able to relocate most assets abroad if they choose to — beyond the facilities available a charge may be paid to allow the balance to be relocated as well. The compulsory capital invested in a living annuity cannot be relocated, but the income drawn annually may be remitted.

As you have not emigrated your status with the South African Reserve Bank will be that of a South African resident temporarily abroad. As such you cannot avail yourself of the emigration facilities. South African residents only have a R2-million offshore investment facility available. If you have resident status you cannot exceed that amount unless you apply to the SA Reserve Bank for exchange control approval. The guidelines are very strictly applied by the Reserve Bank and you may find that you are unable to remit the benefits from your policies abroad once they become available. Any application will be dealt with on a case by case basis by the Reserve Bank, though.

If your intention is to remain abroad permanently and you want to relocate the cash components of the two investments abroad when these become available, you might have to reconsider your status. As a SA resident temporarily abroad your options may be limited while as an emigrant you will be able to use all emigration facilities which may ultimately allow you to relocate your capital.

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