South African Expats can now access funds stuck in Retirement Annuities

Contributed by Mark Ackermann, 29 March, 2018

It is expensive for an immigrant to establish a new home in a developed country. Most South African expats want to be financially emancipated from South Africa by getting their remaining investments out of the country because they have relocated permanently and do not plan on returning permanently. Some simply need the funds to finance their resettlement. Others are highly concerned about the South African political and economic landscape, and the decreasing value of the ZAR against international currencies.

As if exchange control rules and regulations didn't provide enough red tape in getting funds out of SA, investments in retirement products (policies, pensions) are strictly governed by separate legislation designed to encourage, and thereafter enforce, long-term savings by local residents. The express aim is to prevent residents of the country from becoming dependent on the state in their old age. These savings are therefore by design more challenging to cash out – if not entirely impossible.

Retirement Annuities (RA's) – very popular savings vehicles back in South Africa – can only be accessed at age 55, and then only 1/3rd can be taken out in cash whilst the rest must to be rolled into a living annuity. There it will be stuck for the rest of one's natural life (or until slowly depleted), paying a small monthly income in ZAR.

This is inherently unfair towards SA Expats who have permanently established a new life abroad: they will clearly never become a burden on the local economy!

The good news is that the authorities finally acknowledged this injustice. The Tax Act was amended in 2008 to allow for the early and full RA benefit withdrawal by South African citizens permanently settled abroad.

The mechanism through which this is managed is an administrative procedure called Formal Emigration. This process can only be done through one of the four large South African banks: ABSA, FNB, Standard Bank and Nedbank. It essentially changes the residency status of an individual from Resident to Non-Resident, and formally records their new status with the South African authorities (including the central bank and the tax authority).

Upon completion of this process a special non-resident bank account is created for the applicant. An insurance company is only allowed to cash out an RA once an individual policy holder's Formal Emigration process has been completed, and their bank is allowed and able to transfer the proceeds abroad via this Emigrant Capital Account.

The whole process involves the navigation of a fair amount of red tape. A number of intermediaries – broker, or financial service providers – have consequently started taking advantage of expat's lack of knowledge about their financial affairs. This has led to some ridiculous fees being levied to "assist" expats, fees that can make up 10% or more of the value of the funds stuck in the RA.

This is preposterous: it should not have to cost an arm and a leg to get one's own hard-earned savings out of an investment product – especially when it is not a very complicated action. More and more investors are waking up to the fact that they do not need an expensive middleman to cash out their Retirement Annuity policies; they can do it themselves, easily and cost effectively.

One simply needs to understand the requirements and the processes. The information and assistance is available at a fraction of the cost: DIY is the way to go for the expat with funds stuck in a retirement annuity in SA.

Author's Bio

As an expat himself Mark has had his fair share of experience dealing with the processes involved in releasing hard earned funds from South Africa. He has a background in finance and now works with Expatri8 to let others in the same position know that there is an easier way to do this.

Tags: Retirement | Tax | Retire | Other | Africa | Expats | retirement | pensions | investment | South Africa | regulation | legislation | tax authority | insurance | fees | tax |



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