Question:
I am a South African citizen who is going to retire in Europe after reaching retirement age. I expect to receive about R250 000 total per year before tax. My investment for retirement is allocated as follows: about 15% in pension fund, 15% in provident fund and 70% in a preservation fund. To reduce the cost of transfer (if this will be the case), I am willing to receive pension payments once every 3-6 months. How much will it cost me per transfer? If this first choice is costly or impossible from an admin point of view, I will be forced to formally emigrate (sign off with SARS) and move my retirement funds to Europe. In this option, how will the retirement lump sum be taxed? What are the disadvantages if emigrating?
Answer:
Alicja,
You will have to contact your bank, to find out the cost per transfer. You will likely pay a forex conversion charge (if you are remitting the foreign currency, not Rand) as well as an admin fee. The former will likely be based on the amount you convert, the latter will be a fixed charge. At a guess, it may cost you a few hundred Rand every time you do a transfer. The source of the annuity/pension paid is deemed to be South Africa, so you will be taxed in SA on your pension. From personal experience, it is difficult to organise an automatic transfer, as all the required paper work has to be in place every time, signed by you. You need to discuss this with your bank, and whether using an overseas ATM facility overseas may not be a more pragmatic solution.
If you withdraw from a pension, provident, or preservation fund, you will be taxed as follows; the first R22 500 is not taxed; the balance to R600 000 is taxed at 18%, the balance to R900 000 at 27% and the remainder at 36%.
If you retire from a pension, provident fund or preservation fund, the lump sum is taxed as follows: the first R315 000 is not taxed, the second R315 000 is taxed at 18%, the third R315 000 at 27% and the balance (above R945 000) at 36%. But if you retire from a pension or pension preservation fund, you can only take one-third as a lump sum, you must purchase an annuity with the balance. If you retire from a provident or provident preservation fund, you can take the entire amount as cash. Once you have retired and invested in a (compulsory) annuity, you can no longer cash in this part.
If you formally emigrate, you trigger capital gains tax. SARS will deem that you have sold all your (other) South African assets, and levy capital gains tax as appropriate.
