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Financial emigration: Should I withdraw my retirement savings?

If I emigrate, I’m considering cashing out my pension as part of the discretionary R1 million allowance.

I am 32, use a 10X pension umbrella fund and since 2015, have accumulated an investment value of R1.2 million. I am planning to financially emigrate by the end of 2019 and I am wondering if it would not be better to resign, cash out the pension and then move it overseas as part of the annual R1 million discretionary allowance?

Based on the tax table, I would take a knock of about R300 000 in taxes and would be able to move R900 000 overseas (France). The thought is that over the next two years the rand will continue to devalue and by moving it overseas I protect myself from forex fluctuations.

Investment return on the fund is 10%, whereas my overseas investment is currently at 15%.

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There are a few questions that need to be answered, and it’s important to establish an accurate timeline, as it may help you make a better decision.

Firstly, with your emigration, the question that needs to be asked is, will it be permanent? Is there a possibility that you might return in a few years, or, if you perhaps hold a dual-citizenship, then would it be a permanent emigration? I am asking because you mentioned that you are concerned about the rand depreciating, and it alludes to the fact that you could be returning. In my mind, someone who is concerned about the rand devaluing has not entirely made up their mind.

The reason this time-frame question needs to be asked is if your emigration might only be temporary (it might sound odd but it does happen; people do come back), then it might be in your best interest to move your pension fund into a preservation fund, which basically preserves your investment without any tax implications. You will still be allowed to make a once-off withdrawal up to the total value at any time, and the pension fund, as it stands, will still be fixed until 55, but it provides a lot more flexibility.

You also continue receiving the benefit of tax-free growth within the preservation fund structure, so it might not be a bad idea to hold on to your pension fund for a year or two, as it provides you with a bit of time until you really understand the direction you will be heading.

Should you formally emigrate, you will be required to open a non-resident bank account, and ensure that your tax affairs are in order, before you can receive your capital (that is if your pension fund has been transferred to a preservation fund). If you decide to take the plunge, and withdraw fully prior to emigration, this process will be a lot quicker with less hassle, and is probably the best option in terms of efficiency. I have dealt with emigration cases whereby it took more than six months to withdraw, due to delays at Sars, and translation issues (the investor was living overseas).

If your emigration will be permanent, then it only makes sense to withdraw now, and take the capital with you to France. As you’ve mentioned, you will be taxed quite highly, but just so that the other readers understand, here is how the tax is calculated.

2018 tax year (March 1 2017 – February 28 2018)

Taxable income (R)

Rate of Tax

0 – 25 000

0%

25 001 – 660 000

18% of taxable income above 25 000

660 001 – 990 000

114 300 + 27% of taxable income above 660 000

990 001 and above

​203 400 + 36% of taxable income above 990 000

 * This is also referred to as a withdrawal benefit table (pre-retirement)

R1 200 000 will be taxed based on the above table

The tax is worked out as:  R203 400 + 36% (R1 200,000 – R990 000)  = R279 000 tax payable

Any future pre-retirement withdrawals will be added to amount, as you are taxed on aggregate amounts.

So as you mentioned, you will have R921 000 available after tax.

In my opinion, it all depends on your movement. If you are formally emigrating and plan on never returning, then take the money and run.

If you are still sitting on the fence, then give yourself a bit of time, as you have options available.

Who knows, you might decide to return to South Africa one day.

  

ADVISOR PROFILE

Mags Heystek

Brenthurst Wealth

COMMENTS   22

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Considering his age and length to retirement, he could make up the tax loss. The Rand historically (since 1970’s) has depreciated against major currencies.

My initial thought would be to financially emigrate, take the tax knock, and move the remainder into a 40ee International Pension either in US Dollar or Sterling.

Of course the rand has depreciated, but in real terms, and in dollars, an investment in the JSE has far outperformed most other bourses over any long term period in recent decades.

Brilliant advice from MH in delaying the decision for a year or two. All this would cover is a few months rent anyway, so it’s really not worth making a decision on.

One must also consider the tax regime in the new country to which you emigrate. If after five years you decide you don’t want to go back to what’s left of SA, you decide to get you money out:

Q: are you able to get it out?
Q: what are you SA tax liabilities?
Q: what are the French tax liabilities since you are now a French resident?

Many countries give you a limited time tax free to get your money out of your old country.

Yes, the rand devalues over time against currencies like the Euro, but we have higher inflation and higher returns on our capital, so leaving it here is not necessarily going to lose you money, even with the Rand devaluation.

Example:
SA: Returns on equity, Inflation + 5% = 10.5%
Europe: Returns on equity, Inflation + 5% = 6.5%

Usually the Rand will devalue by the difference of the inflation rates, so you might see a 4% devaluation of the Rand, but the 10.5% return (4% higher than 6.5% return) makes up for it.

Hope this makes sense.

I suggest you speak to a local quality independent local financial adviser who can help structure a offshore pension for you, typically domiciled in a well regulated and tax efficient jurisdiction such as Jersey. Your ultimate place of domicile remains flexible, and you can maintain this asset to your advantage whether you are in SA or France at a future date. Naturally you will retain tax responsibilities based on your on-going tax residence status.. An offshore pension structure through a good quality provider, holding an international investment portfolio in Sterling, USD or Euro is a common and sensible approach to this type of scenario – and provides useful added wealth diversification.

Good grief, that’s not how tax tables work.

The tax is 203,400 + 36%(1,200,000 – 990,000) = 279,000

In my view, you haven’t raised the most important issue and that is section 9H of Income Tax Act. When you immigrate, you will have a deemed disposal of all your assets. For an individual, you will pay max 18% capital gains tax and for a trust
36%. Therefore do the calc before you emigrate and see what you can do with your 82% once you have sold your house and everything, especially if the Rand deteriorates. But here is the question: is it better to leave now or leave later? In 2002 CGT on individuals was 5%. Today it’s more than 3 times that at 18%. What if it goes up to 50% or 60%? Will we all eventually be taxed to death here because (1) we stay here or (2) because we can’t leave? Will we become prisoners in our own country?

Emigrate, not immigrate. How is this so hard for people to get right?

A Trust can’t emigrate. Or are you implying that he might have a Trust he actually controls..? Goodness, that’s an admission of guilt if ever there was one!

A trust can’t earn retirement savings which was the focus of the whole article. What a stupid remark.

Am I missing something…he said “financial emigration”..i.e. they are staying, but their money is going, not so?

No, not so. You have to emigrate to financially emigrate, although you can emigrate without financially emigrating.

32 years old, R1.2m pension. Wow what am I doing wrong?

It is a marathon not a race.

The point TD, was not countering the amount but the amount at that age

Perhaps the contributor should drop the age of the “fictitious” client and just give good advice without trying to impress upon us his subtle conciet

I would think a professional graduate who has been working for 10 years could quite feasibly have R1m in his pension fund..?

At a 10% return it would take R4966 pm+- over 10 years to get there, not easy if you are fresh out of varsity but hey if you live below your means and you have a good degree its very much possible, or you know, you just happen to inherit some money, that helps too 😛

I agree this is not easy but it can be done, if you con’t have family (dependent) expenses and have no significant debt. I was broke at age 50 but thereafter managed to put away more than this and retire moderately comfortably. But let me emphasise, it’s not easy.

it would normally make sense to delay some events to benefit from lower average tax rates. Split the financial emigration to a tax year when no longer earning much in SA.

As to prospects, I would move everything I can out of reach of all advisors, managers and thieves in general. Get the cash, invest directly in a dozen global equities and you will have 200% more over a 30 year period. Ask me. I only have one policy product (compulsory in my last salaried job) and like a fool ignored it. Sanlam generated an IRR of 8.3% over a 25 year period – less than half the JSE all share.

Compound interest is a miracle, but compound fees is its fugly cousin.

You are 32. The avalanche in South Africa has just begun. The economic recovery due to the state capture is going to take many years and we have no certainty that another thief may get to lead the country and having learned from the present regime, do the same, similar or even worse and wipe the country out financially even further.

Cyril has been so slow at making any positive and decisive steps to have anyone regain confidence, that I consider him to be possible retarded or petrified of those who still have their snouts in the feeding trough. Maybe he too is feeding from the trough – we have no guarantees that he isn’t.

So, take your money, go and live in a safer place and live a peaceful and more financially secure life, and if South Africa ever really has a good story to tell, then come back for a holiday but pat your own back for having the balls to protect your family and the little you have to save from the clutches of the trough eaters.

Golly the Reader reckons he is getting 10% return on SA investment and better 15% overseas. Wow how is this possible overseas…where do i sign up? I cannot get more than 1.05% and investment products want to tie me up for 5years to get 3% after 3years and then performance based returns. Has the reader told the truth here. One thing to note is that Estate duty is 20% so if the reader passes away he has to ensure that he isnt liable for that tax as a SA resident too. If he emigrates when does the 20% Estate duty tax officially fall away. In addition he has to ensure that his beneficiaries can get the assets he leaves them with a proper will as SA TRUSTS may not own overseas assets etc. Oh by the way have you seen our friend Judge Dennis Davis is looking at some other additional property wealth taxes on top of the municipality taxes. We south africans are an open wound bleeding and bleeding and bleeding. THe government is mismanaging and stealing everything.What happened to the EFFICIENCY concept of trying to find ways to perform jobs cheaper with the lowest cost quality supplier..doesnt matter because you just have to be BEE? We never had CGT or Dividends tax of 20% on equities.Imagine how much revenue is obtained from every single company in south africa that pays a Dividend and yet the government has shortfalls . The shortfall has clearly been proven to be theft or manipulated theft Example PRASA,SAA,ESKOM delierate load shedding so gupta provide coal at $600 a ton internation fee $100. Zuma hasnt reported what his tax affairs are. If we are paying tax monies to a criminal organization SARS then surely we are now complicit and criminals by association when we pay taxes. The ETOLL was shown to be an outright FRAUD and people refused to pay. Wow how powerful are the people.

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