Question:
I am 62 and due to retire in 5 months time. I am a British citizen and South African permanent resident. I intend to return to the UK within the next couple of years and reside there. Should I resign now and thus withdraw from my pension fund and invest in some form of savings or should I retire. If I retire from my fund and therefore take an annuity will I be able to cash in the full amount in the annuity when I return to the UK i.e. emigrate?
Answer:
Jean,
Once you convert your savings into a guaranteed annuity, it cannot be cashed in thereafter. It will continue to be paid out in SA and you will have to transfer the proceeds to the UK (monthly or annually).
To avoid this, you can withdraw – rather than retire – from your pension fund. You can only do so when you leave your current employer (either through resignation or at retirement). By withdrawing (rather than retiring) from the pension fund, you will pay a higher lump sum tax rate. Only the first R22 500 will then be tax free, the balance to R600 000 will be taxed at 18%, the balance to R900 000 at 27%, and the remainder at 36%. On retirement from a pension fund,your lump sum tax rate is 0% on the first R315 000, 18% on the second R315 000, 27% on the third, and 36% on the balance. But at retirement you can only take one third as a lump sum, with the balance you must invest in an annuity.
You do not however have to buy a compulsory annuity, you can purchase a living annuity (known as a draw-down account in the UK). On formal emigration (ie formally signing off with SARS), you will be able to cash in the balance on this annuity and take it offshore. This may be the most tax efficient route, but will obviously be more complicated and time consuming than simply withdrawing from your pension fund at retirement.
