Pensions for Expats in South Africa

Submitted: January 2014

In South Africa, the right to social security is guaranteed by the Constitution, at least in theory. South Africa’s pension system is based on three pillars: (1) means-tested, tax-financed pension benefits, (2) a contribution-based system, and (3) voluntary savings.

Most South African citizens (around 75% of the population) reach retirement age without having saved enough throughout their working life. The means-tested system is therefore designed to redistribute general tax revenue to these people. For that reason, expats should view South Africa as a highly redistributive country, for they are likely to pay taxes but not to be paid means-tested benefits.

Assuming you are single, you will not be eligible for means-tested benefits if your income exceeds ZAR49,200 a year and if your capital exceeds ZAR831,600. One piece of good news though: pension age is still at 60.

All expats who work in the formal sector are likely to be enrolled in occupational pension schemes, as this is commonplace in South Africa once you have a formal job. It’s often best to check if enrolment is mandatory, especially if you think you will not keep your job for long. Occupational superannuation funds are generally defined-contribution schemes.

General outlook

The Government looks eager to further develop the contributory pillar. Instead of introducing an EU-style social insurance system, South African policymakers would be keen to make contributions to private pension funds mandatory, as in the UK, Australia or Hong Kong. However, this all would be hard to implement given the size of South Africa’s informal sector, not to mention the jobless rate.

There are also proposals to scrap the means-test in order to encourage private saving.

Private retirement funds

There are Provident Funds and Pension Funds. The former are designed to pay you a lump sum whereas the latter should provide you with an annuity. That said, it’s still possible to withdraw one third of your savings in a Pension Fund as a lump sum.

Although lump sum benefits are quite attractive, management fees in Provident Funds tend to be high. Be also aware of the tax risks of parking too much money in a Provident Fund, as you would need to pay a 36% tax if your savings therein exceed US$100,000 (see below).


The tax regime depends on whether your pension scheme is a Pension Fund or a Provident Fund. As a general rule, you can claim tax relief on your contributions up to a maximum permitted amount. These maxima are as follows:


Provident Fund

Pension Fund

Employer contributions

10% of gross pay

10% of gross pay

Employee contributions


7.5% of gross pay or ZAR1,750 (whichever is higher)

In fact, the South African Revenue Service would normally allow employer contributions to be tax deductible up to 20% of gross remuneration. Should the circumstances justify it, a higher percentage would be permitted.

From 1 March 2015, a new system will make all contributions (employers’ and employees’) tax-deductible up to the lower of:

If you save in a South African pension scheme without claiming tax relief for your contributions, payouts may be tax-free. Otherwise, pension payouts are taxable.

Should you go for an annuity, you could claim tax relief for your medical bills once you are aged 65 or over. If, on the other hand, you decide to withdraw your pension benefits as a lump sum, a special tax scale would apply. This is because lump sum payments reflect your income throughout your working life, not for a specific year. This tax scale is as follows:

Lump sum withdrawal (ZAR)

Tax rate (%)

0 – 315,000


315,001 – 630,000


630,001 – 945,000


945,001 and over


Social security agreements

There is a social security agreement between South Africa and the Netherlands. Apart from that, South Africa has no social security agreements. Consequently, your period of contributions in your home country cannot be totalised with your period of residence in South Africa.

The potential impact would be felt when you claim pension benefits in your home country, as a rebate would generally be applied unless you have contributed for a minimum number of years. In some cases, the rebate would be punitive. Feel free to check if you can keep paying social insurance contributions in your home country whilst you are in South Africa.

International superannuation planning

In many countries, private superannuation schemes are tax-efficient products. Thus, they are heavily regulated in order to avoid undue tax base erosion. Thus, you should check:

Your home country may have a tax treaty with South Africa to avoid double taxation on your foreign pensions. As a general rule, pension payouts are only taxable in your country of residence. That said, you should check your tax treaty to make sure you don’t fall under an exception. This may be the case, for example, if your pension is paid by a public sector body.

Retaining your foreign pension arrangements may be the most practical option if you don’t intend to stay in South Africa. Nevertheless, cross-border superannuation planning is always on a case-by-case basis. It is strongly recommended to seek professional advice regarding this matter.



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