Speak to a financial advisor before you make a decision. Do not panic and do not act in haste.
- National Treasury announced in the 2020 budget that the concept of “financial emigration” would be scrapped.
- This proposal is reflected in the Taxation Laws Amendment Bill 2020.
- The bill proposes that a new test make provision for the payment of a retirement fund lump sum benefit when a member ceases to be a South African tax resident.
The concept of financial emigration is changing, which has implications for retirement fund members wanting to emigrate from South Africa – and possibly their savings, warns Denver Keswell, senior legal advisor at Nedgroup Investments.
For the SA Reserve Bank’s exchange control purposes, financial emigration means a person’s tax status is changed from being an SA resident to a non-resident. National Treasury announced in the 2020 budget that the concept of “financial emigration” would be scrapped. This proposal is reflected in the Taxation Laws Amendment Bill 2020 (TLAB).
“Retirement fund members are generally only allowed to access their retirement fund benefits when they reach retirement age, namely 55 for retirement annuity members and preservation fund members who have already taken the one prior withdrawal allowed,” explains Keswell.
“However, the definition of a pension preservation fund, provident preservation fund and retirement annuity fund in the Income Tax Act allows a fund member to withdraw their full fund value prior to retirement if they ‘formally emigrate’ from South Africa. Scrapping this requirement would require a new test for a retirement fund member to withdraw their retirement fund benefit when they ’emigrate’ from the country.”
– Denver Keswell
The Taxation Laws Amendment Bill, therefore, proposes that a new test make provision for the payment of a retirement fund lump sum benefit when a member ceases to be a South African tax resident and has remained non-tax resident for a period of at least three consecutive years. If the proposed amendments are signed into law, they will become effective 1 March 2021.
Ongoing lobbying
According to Aneria Bouwer of Bowmans attorneys, there is still ongoing lobbying against imposing this three-year waiting period. One of the effects could be that South Africans planning to emigrate may not be able to rely on withdrawals from preservation funds or retirement annuity funds to cover their settling-in costs in a new country.
The current rule allows withdrawals in the event of financial emigration. In other words, members of preservation funds and retirement annuities may withdraw their funds if their emigration is recognised by SARB for exchange control purposes.
Because the current rule will still apply in respect of applications for financial emigration received on or before 28 February 2021, she says anecdotal evidence suggests this has caused more South Africans to try to speed up their emigration application process.
“In the view (of Treasury), the three-year waiting period is a mechanism to ensure that there is a sufficient lapse of time for all emigration processes to have been completed with certainty, without affecting such workers whose residence status changes for reasons other than financial emigration,” explains Bouwer.
She says it is important for potential emigrants to understand that the three-year waiting period applies only to preservation funds and retirement annuity funds, not to current membership of pension or provident funds. The full after-tax value of a withdrawal benefit in respect of a pension fund or provident fund will continue to be available to current members of these funds, also after 1 March 2021.
“Speak to a financial advisor before you make a decision. Do not panic and do not act in haste,” she cautions.