Retirement funds offer obvious tax benefits while you're tax resident in South Africa. However, once you leave the country, how do you access these funds and what are the tax implications?


Retirement funds, especially retirement annuities, have long been the bugbear of South Africans emigrating to greener pastures. While there are significant tax advantages to investing through an approved retirement fund in South Africa while you are tax resident, such as the tax deductibility of contributions, there are far-reaching implications and considerations should you decide to leave.

Pension or provident fund

Prior to retirement

A pension or provident fund is linked to employment and, when we resign from employment, we can elect to take the fund in cash, subject to withdrawal tax. Withdrawal tax ranges from 18% to 36% and previous withdrawals are aggregated after 1 March 2009. The 36% bracket kicks in at R990,000.

At retirement

If you retire (from age 55), then rules differ between pension and provident funds:

Pension funds allow a maximum of one third of the fund as a cash lump sum, subject to retirement tax tables, with the first R500,000 taxed at 0% (aggregation applies to certain lump sums received in the past) and the balance needs to be used to purchase a living or life annuity. If the value is below R247,500, then you can commute the full value as a lump sum.

As of 28 February 2022, provident funds allow you to withdraw 100% of vested benefits, with non-vested benefits (amounts accrued after 1 March 2021) limited to a maximum of one third as a cash lump sum. The balance needs to be used to purchase a living or life annuity.

See also: Retirement planning: How to prepare financially for a stress-free future

Preservation fund (pension or provident)

A preservation fund is a vehicle that is used to preserve a pension or provident fund when you leave a company.

Prior to retirement

You may elect to access funds before age 55 via a once-off full or part surrender – the lump sum will be taxed according to the withdrawal tax tables, noted above. If that one withdrawal has already taken place, you can only access the balance if you’ve emigrated and have been a non-resident for South African tax purposes for at least three years.

At retirement

If you elect to retire from the fund (from age 55), the same retirement tax tables and rules noted above apply depending on if you are in a provident or pension preservation fund

Retirement annuity

A retirement annuity is not employer-linked and you can contribute 27.5% of remuneration or taxable income to this vehicle. Many South Africans hold retirement annuities which are aimed at saving for retirement and provide significant tax benefits whilst resident in South Africa.

Prior to retirement

Unlike pension or provident funds that are employer-related, the retirement annuities do not allow for resignation. You can only withdraw your retirement annuity if:

  • If the total value of the RA is less than R15,000
  • If the policyholder has suffered a permanent disability
  • If you have emigrated. From 1 March 2021, if you wish to access your retirement annuity once you have emigrated, you must have been a non-resident for South African tax purposes for at least three years and have completed tax emigration with SARS.

If you emigrate with an RA left in South Africa, you will need to consider how to manage this investment with a view to withdrawing after three years or more. For example, if you’re young, withdrawing after three years may make sense as you can build up a retirement fund in your new country and the exit tax may be low.

See also: South African exit tax – a tale of four brothers

For countries such as the UK, there is tax relief on pension contributions up to 45% and you can carry forward the annual allowance for pension contribution for three years – effectively, you could recontribute the proceeds of withdrawal to a UK pension, subject to your UK income, which would place you in good stead to build retirement capital in your new country. There are some calculations that need to be done here and it will help to speak to a qualified cross border adviser to determine the best course of action.

However, if you’re nearing 55, then you could consider retaining your RA and retiring at 55 (or later) if the RA forms a significant part of your retirement capital.

At retirement

If you reach the age of 55 and have emigrated, you will be able to either withdraw or retire fromyour RA. As with a pension, you may withdraw a maximum of one-third as a lump sum and the remainder must be reinvested into a living annuity.

In such a situation, you may wish to take advantage of an offshore living annuity. This involves retiring from your RA and then transferring your living annuity to a provider who can transfer your capital offshore. Doing this ensures that you minimise any currency mismatch that may exist. Holding Rand-based investments could lead to capital erosion over time.

It’s important to bear in mind that when you change tax residency and do not continue to earn an income, any contributions are likely to be “disallowed” – this means that they are not tax deductible but can be used against future lump sums on withdrawal or retirement.

You will also need to assess any penalties or fees that may be applied for making the retirement annuity paid up, if applicable. This is where you stop contributing to the RA. Again, it will help to speak to a qualified cross-border adviser to determine the best course of action.

Should I change my retirement investment strategy if I leave SA?

South African retirement annuities, pensions, provident funds and preservation funds are subject to rules which limit the amount you may invest offshore.

Regulation 28 of the Pension Funds Act limits the amount that an investor may invest in risky assets such as equities and applies to retirement annuities, pension or provident funds as well as preservation funds.

According to Treasury, the regulation “seeks to protect retirement fund member savings, by limiting the extent to which funds may invest in a particular asset, or in particular asset classes, and prevents excessive concentration risk”.

Earlier this year, the Minister of Finance raised the foreign investment limits from 30% to 45%.

If you are living outside South Africa and plan to withdraw your RA, it could make sense to increase the offshore allocation at or near these limits. Generally, this is done by using a Rand-denominated feeder fund. These funds give you access to global assets but are priced in Rand, so if the Rand weakens then your investment value will increase and vice versa. The main advantage of increasing offshore exposure within your RA is that if the Rand weakens, it will limit the impact of a reduced amount when you withdraw the RA.

Careful consideration needs to be paid to the investment management and the risk that you take – using a qualified cross-border advisor will help you ensure that you make the right financial decisions. Get in touch with our expert advisers on +27 (0) 21 657 1540 (SA) or +44 (0) 20 7759 7519 (UK) or at

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