Question:
I am a South African citizen who is going to retire in Europe, after reaching retirement age. In what way I will be able to receive my monthly pension payments? Thanks in advance for your help/suggestions.
Answer:
Alicja,
To answer your question specifically, we would require more information about your situation, in particular your retirement fund set-up. Are you a member of a defined benefit or a defined contribution fund, and do you plan to emigrate formally? Do you intend to buy an annuity locally?
If you are a member of a defined benefit fund, you will receive a monthly pension for life. This pension will be paid out in South Africa. You can transfer the monthly pension overseas, but you obviously carry exchange rate risk (your pension amount will change from month to month). Such monthly bank transfers are quite expensive and administratively a big hassle, so you may want to consider letting the money accumulate in SA for a period and then do a transfer say every six months. Alternatively, if you maintain a South African debit or credit card, you can draw the money from an overseas ATM. This may be quicker, more efficient, and less expensive.
If you plan to buy a pension in SA from the proceeds of a pension, provident or retirement annuity fund, the same will apply. Your alternative is not to buy a pension, but to take a cash lump sum, and then transfer that lump sum overseas. Current exchange rules allow you to take out R4m a year.
If you are a member of a provident fund, you are allowed to take the full amount as a cash lump sum anyway. If you are a member of a pension fund, you are required to use at least two-thirds to purchase a pension. To get around this, you can withdraw rather than retire from your pension fund. You will pay a bit more tax, but you are then not required to buy a pension.
If you are a member of a retirement annuity, you cannot withdraw, i.e. at retirement you would be compelled to buy a local pension. The only way to get around that is to formally emigrate before your officially retire from the retirement annuity. Formal emigration requires that you sign off with SARS. You are then allowed to commute your retirement annuity to cash and transfer the proceeds abroad.
