If you emigrate and formally cease to be a South African tax resident, you can eventually access your retirement savings in full – but only after meeting a three-year non-residency requirement for certain components of your fund.
According to Jenny Gordon, the head of technical advice at Alexforbes, this rule has become particularly important under the two-pot retirement system. The system changes how and when members can access their savings, both while living in South Africa and after leaving the country permanently.
South Africans typically save for retirement through one or more of three fund types:
- Occupational funds, such as pension or provident funds provided through an employer.
- Preservation funds, which allow individuals to preserve their retirement savings after changing jobs.
- Retirement annuity (RA) funds, which are privately contributed to and not linked to an employer.
“These funds all benefit from generous tax incentives,” Gordon says. “In exchange, there are restrictions on when and how you can access your money. The system is designed to encourage long-term savings discipline.”
Under the two system, members’ savings are divided into three distinct components, each with different access rules:
- Retirement component. This portion is locked until retirement and must be used to provide income in retirement.
- Savings component. Members can access this portion while still working, but only once a year and within prescribed limits.
- Vested component. This covers savings accumulated before the new system began and may be subject to different withdrawal rules depending on the fund.
Gordon notes that this structure “offers some flexibility to members while protecting their long-term retirement capital. However, when you emigrate and are no longer part of the South African tax base, the rules shift significantly.”
What happens when you emigrate?
Once a person ceases to be a South African tax resident, they are effectively no longer part of the country’s retirement system. The law recognises this by allowing emigrants to access their retirement savings earlier than residents, but the timing and conditions vary depending on each individual’s situation.
- Temporary residents
Individuals who worked in South Africa on a temporary work visa and have since left can withdraw their full retirement benefit immediately after the visa expires and they depart. There is no waiting period, regardless of the fund type.
- Individuals who emigrated more than three years ago
If you emigrated and ceased to be a South African tax resident more than three years ago, you may withdraw all your retirement savings, including the retirement and vested components, with no waiting time.
- Individuals who emigrated within the past three years
For those who ceased to be tax residents less than three years ago, there are waiting periods that apply:
- The retirement component can be withdrawn only after being a non-resident for three uninterrupted years.
- In an RA fund, the vested component is also subject to this three-year rule.
- In a preservation fund, proposed legislative changes will allow immediate access to the vested component if it is the first withdrawal. However, if a member has already made a withdrawal or transferred benefits after retiring from employment, they must also observe the three-year period.
Regardless of the above, the savings component remains available for immediate withdrawal.
Tax implications
Withdrawals on emigration are subject to tax, but the applicable rates depend on the fund component being accessed:
- The savings component is taxed at the member’s normal income tax rate.
- The retirement and vested components are taxed according to the lump-sum withdrawal tax tables, where larger amounts attract higher marginal rates.
Gordon cautions that emigrants must also consider whether their new country of residence has a double taxation agreement with South Africa. “These agreements determine where the income is taxed and help prevent double taxation on the same withdrawal,” she says. “It’s a crucial factor that can materially affect the after-tax amount you receive.”
Why timing matters
The timing of your emigration – and more specifically, the date when SARS recognises you as a non-resident for tax purposes – is critical. The three-year waiting period starts only once you have formally ceased tax residency with the South African Revenue Service, not simply when you leave the country.
“The difference of a few months in when SARS confirms your non-resident status can determine whether you wait three years or longer before you can access your retirement and vested components,” Gordon notes.
Planning is essential
The rules around accessing retirement savings after emigration can appear complex, particularly with the introduction of the two-pot system. Gordon recommends careful planning and professional advice to avoid unintended tax or timing consequences.
“Before making any decisions, it’s vital to consult a qualified financial planner or tax specialist,” she advises. “They can help clarify how the rules apply to your situation, guide you through the paperwork required by both your fund and SARS, and ensure the withdrawal is handled in the most tax-efficient way possible.”
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article is a general guide and should not be used as a substitute for obtaining professional tax advice.
