Picture: 123RF/MIRKO VITALI
Picture: 123RF/MIRKO VITALI

If you are emigrating from SA, you may be wondering what you can or should do with your pension or provident fund. You essentially have two options. First option: withdraw the amount from your pension/provident fund.

Unfortunately, this will lead to you being taxed in SA on the amount you withdraw.

You cannot transfer your retirement savings to a fund in the country you are moving to without any negative tax implications.

As your pension or provident fund is employer-specific, you do not need to formally emigrate with the South African Reserve Bank to gain access to all of your savings (unlike with a retirement annuity).

You can thus withdraw the entire amount from your pension or provident fund upon resignation from your employer.

You will, however, pay tax on this withdrawal on a sliding scale; only if the amount you are withdrawing is less than R25,000 will there be no tax payable.

Examples best illustrate the effects of this withdrawal:

• Example 1 - Withdrawal before retirement

Amount to be withdrawn: R500,000

Amount of tax to be paid: R85,500

Percentage of tax paid: 17%

• Example 2 - Withdrawal before retirement

Amount to be withdrawn: R1,000,000

Amount of tax to be paid: R207,000

Percentage of tax paid: 21%

If you emigrate at the same time that you are retiring from your work, you may have access to the retirement benefit table (as set out in examples 3 & 4) which would result in far less tax being payable.

When you resign from work, you can either leave your savings in your pension or provident fund or transfer them to a preservation or RA fund.

In this article we consider what happens when your funds are transferred to a preservation fund.

A preservation fund is a fund to which you do not contribute, but is invested and will hopefully grow in value over time.

You are allowed to make one withdrawal from your preservation fund prior to reaching the age of 55 years; when you reach 55 you are entitled to take one-third of the amount from your pension preservation fund as cash and the rest must be paid as an ongoing monthly payment (an annuity).

Note that if you are a member of a provident preservation fund, you may withdraw the entire amount in the preservation fund at 55 years of age.

If you have already withdrawn an amount from your preservation fund and you have not reached the age of 55, you will have to formally emigrate with the South African Reserve Bank in order to access the remainder of your funds.

If you transfer your pension/provident fund to a preservation fund and then only withdraw from the preservation fund when you reach the age of 55, you will pay less tax on withdrawal than if you withdraw the money directly from your pension fund upon leaving your employer.

The effect of this is best illustrated by examples (please refer to examples 1 & 2 above that deal with withdrawing from a pension fund before retirement):

• Example 3 - Withdrawal after reaching age 55

Amount to be withdrawn: R500,000

Tax payable: R0 (the first R500,000 withdrawn is tax free)

• Example 4 - Withdrawal after reaching age 55

Amount to be withdrawn: R1,000,000

Tax payable: R117,000

Percentage of tax paid: 12%

As can be seen by the above examples, the tax payable when you withdraw upon reaching the age of 55 is significantly less than if you withdraw prior to reaching 55.

However, bear in mind that while you may pay less tax on the withdrawal of the amount upon reaching 55, you run the risk of the rand depreciating and thus the value of your pension depreciating (in relation to the currency of the country to which you have emigrated). In addition, if you are invested in a pension preservation fund you cannot take out more than a third of the value of the fund upon reaching 55; the rest must be received as an annuity (generally monthly).

Please note that if you have already retired and are receiving an annuity payment, you cannot liquidate the money in your fund unless the amount is less than R50,000 (R75,000 in some circumstances).

In such a case you will have to continue receiving your annuity payments in SA and transfer them from SA to the country to which you have emigrated.

• Baines is the author of How to Get a Sars Refund and a tax consultant at Mazars