Given the absolutely shocking performance of local SA funds, it would be useful to know if a South African retirement annuity (RA) can be transferred to an ‘international market investment’. My local RA has done absolutely nothing for the last five to seven years; do we have to suffer the same losses going forward?
The past few years have been particularly challenging for South Africa’s economy, but over the past year, the markets have produced satisfactory results. Some local equity funds in the industry achieved returns of over 20% in 2021.
To answer your question, as a South African resident you cannot transfer or withdraw your retirement annuity (RA) before your retirement age.
The only circumstances in which an investor is allowed to withdraw from their RA are:
- Financial emigration (new rules came into effect on March 1, 2021)
Once a person has formalised their financial emigration, they are eligible for early withdrawal of their retirement annuity, which allows them to access and transfer funds overseas as part of their foreign capital allowance.
- Permanently disabled
Once a person has submitted medical reports proving they are permanently disabled they are eligible for an early withdrawal of their RA.
- Retirement annuity value less than R15 000
An investor may withdraw their retirement annuity before retirement age if they are no longer contributing to it and the total market value is less than R15 000.
If you are making a monthly contribution towards your retirement annuity you can decrease your monthly contribution and put the balance into an investment with higher offshore exposure.
Once the funds are sufficient for the minimum requirement of an offshore investment, the funds can then be invested into a direct offshore investment.
You should bear in mind that contributions to a retirement annuity are tax-deductible – if you reduce or stop your contribution to an RA, you will lose this tax benefit.
To avoid losses/maximise your returns
To avoid losses going forward there are alternative options such as increasing the offshore exposure in your retirement annuity to the maximum of 30% ensuring that your retirement annuity is Regulation 28 compliant.
This can be done by investing in asset swap funds where the funds are linked to the offshore markets but are rand-denominated. Certain service providers allow you to invest in a direct offshore fund.
Among the benefits of investing in an offshore fund are that you will have exposure to offshore stocks and protection against depreciation of the rand against other major currencies.
It is important that you diversify your retirement annuity by spreading the risk across all asset classes such as equities, bonds and cash. A well-diversified retirement annuity can maximise the return while minimising any unsystematic risk.
If you are close to or at retirement age there are more options available. We recommend that you discuss these with an experienced financial advisor who can ensure that your portfolio is well-diversified and/or recommend alternative investment options.