SARS retirement fund warning for South Africans living overseas

Experts warned that South Africans living abroad need to understand the complex tax, timing, and access rules around withdrawing local retirement savings after emigrating, especially under the new two-pot system.

Alexforbes’ head of technical advice, Jenny Gordon, explained that South Africa is a mobile nation, which means many people build their careers abroad or decide to relocate permanently for family or lifestyle reasons.

Unfortunately, South Africans who choose to live abroad have to navigate the country’s retirement savings rules, which have been made even more confusing since the introduction of the two-pot system.

In South Africa, retirement savings are grouped into three main categories. Occupational funds include pension and provident funds through an employer.

Preservation funds include pension and provident preservation funds. Retirement annuity funds include funds that are contributed to privately.

“These funds exist to help South Africans save enough to live comfortably when they stop working and to reduce their reliance on the state in retirement,” Gordon said.

“That’s why the system is supported by generous tax incentives. In exchange, there are restrictions on when and how you can access your money.”

Under the new two-pot retirement system, which came into effect in September 2024, retirement savings are divided into three parts:

• Retirement component: This portion is locked in until retirement and must be used to provide an income upon retirement.
• Savings component: This can be accessed while still working, but only once a year and within limits.
• Vested component: This refers to savings accumulated before the new system started and may have different withdrawal rules depending on the fund.

“This structure is designed to give members limited flexibility while ensuring they don’t deplete their retirement capital too soon,” Gordon said.

“However, things work differently when you emigrate permanently and are no longer part of the South African tax base.”

Waiting periods

“Once you officially cease to be a South African tax resident, you are effectively no longer part of the country’s retirement system,” Gordon explained.

“The law therefore allows emigrants to access their retirement savings earlier than those who remain in South Africa, but there are waiting periods and conditions depending on your situation.”

Those who worked in South Africa on a temporary work visa and whose visa has since expired can withdraw their full retirement benefit immediately after leaving the country. There’s no waiting period, regardless of the fund type.

Those who have emigrated and ceased to be a South African tax resident more than three years ago can withdraw all their retirement savings, including the retirement and vested components, without any waiting period.

However, other members who ceased to be South African tax residents less than three years ago will be subject to waiting periods.

“They will not be able to withdraw their retirement component until they have been non-residents for an uninterrupted period of three years,” Gordon said.

“There are some differences between the different types of funds. In a retirement annuity fund, the vested component will also be subject to the uninterrupted three-year period.”

In a preservation fund, on the other hand, the latest legislative proposals will allow immediate access to the vested component if it is the first withdrawal.

If the member has a previous withdrawal or has previously transferred a retirement benefit after retiring from employment, they will also have to wait for three years.

However, Gordon explained that the savings component is always available for immediate withdrawal by those living abroad.

Tax implications

Gordon cautioned that withdrawals from a retirement fund on emigration are also subject to tax, but the rate and method depend on which component is being accessed.

• The savings component is taxed at your normal income-tax rate.
• The retirement and vested components are taxed according to the lump-sum withdrawal tables, where higher amounts attract higher rates of tax.

“Another key consideration is whether your new country of residence has a Double Taxation Agreement (DTA) with South Africa,” Gordon said.

“These agreements determine where the income is taxed, in South Africa or in your new country, and help prevent being taxed twice on the same withdrawal.”

Since the rules around accessing retirement funds after emigration can seem complex, especially with the new two-pot structure now in place, Gordon stressed the importance of proper planning.

“Timing is crucial – the three-year waiting rule can make a big difference to when you’ll have access to your full savings and how much tax you’ll pay,” she said.

Before making any decisions, Gordon advised that emigrants should speak to a qualified financial planner or tax specialist.

“They can help clarify how the rules apply to your specific situation, assist with the paperwork required by your fund and SARS and ensure your withdrawal is processed in the most tax-efficient way possible,” she said.

“South Africa’s retirement fund system is designed to protect long-term savings, ensuring that members have a secure income later in life.”

For those who choose to build their future abroad, Gordon said the law also provides a fair and practical route to access these funds.

“Understanding how the different fund components work, the timing requirements and the tax implications can help emigrants make informed decisions and avoid unpleasant surprises down the line,” she said.

“With careful planning and professional advice, you can ensure that your hard-earned retirement savings continue to support your goals, wherever in the world you may be.”