Pension warning for South African emigrants

Major questions remain over South Africa’s new two-pot retirement system, with tax experts still unsure how the changes will affect South African expats.

According to Lambert Roberts and Martin Bezuidenhout from Tax Consulting SA, there is still widespread confusion amongst South Africans on how they can access their South African retirement funds overseas and if they’ll be taxed.

As there have been recent changes to legislation, there are several nuances that South African expats should take note of.

In the past, South Africans could withdraw their retirement savings immediately after confirming their immigration status with the South African Reserve Bank (SARB) and the South African Revenue Service (SARS).

In March 2021, a new three-year lock-up rile was introduced, which, as the name suggests, meant that funds would be placed on hold for three before being fully accessible.

Roberts and Bezuidenhout said that the use of a lump sum withdrawal table is crucial in such cases:

“Navigating the withdrawal process involves understanding the procedural requirements and specific nuances associated with it. An essential step includes providing proof of tax non-resident status, which is generally in the form of a Notice of Non-Resident Tax Status issued by SARS,” the experts said.

“This Notice confirms the individual’s date of tax residency cessation and is considered to be crucial evidence required to process the withdrawal by the relevant policyholder. Without this Notice, these retirement funds will often remain locked in South Africa.”

Two-Pot Hurdle

The new two-pot retirement system, which has been delayed to 1 March 2025, could also create further challenges for expats trying to take out their retirement funds from South Africa.

In the new system, a maximum of one-third of all retirement savings will be placed in a savings pot, whilst a minimum of two-thirds will be placed in a retirement pot. The savings pot will be accessible prior to retirement and is designed to act as an emergency fund for pension members.

A third vested pot will hold all retirement savings prior to the commencement of the new system next year and will abide by the current pension rules.

“However, the impact of this system for expatriates and the associated tax implications largely remain unclear at this stage,” the experts said.

Pros and cons

Michelle Acton from Old Mutual added that the new system will likely intensify South Africa’s short-term thinking, where individuals look at immediate needs and overlook financial security.  

That said, she said that the new two-pot system will counter the biggest problem currently – the ability to access one’s entire pension savings when changing jobs. This often leads to members having to restart the pension process all over again while also missing out on compound interest.

“The Two-Pot’s short-term access is the lesser of the two evils. At the very least, it solves one problem: more South Africans can retire better,” Acton said.

Read: Money is flooding out of South Africa – but things are not as bad as they seem