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If my LA is invested in foreign portfolios, can my income be paid into a global account?

Foreign exchange control regulations prevent this – but once you receive your income in rands you can transfer it to an offshore bank account.

If my life annuity is invested in foreign portfolios am I able to have my life annuity income paid in dollars or pounds or euros into my global account instead of my savings or cheque account?

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Due to foreign exchange control regulations, an annuity provider may not pay your income to you offshore, even though your underlying portfolio may be invested in offshore funds.

It is important to know whether you are invested in rand-denominated offshore funds – often called asset swap or feeder funds – or in offshore registered, foreign currency funds.

If your annuity is invested in a foreign currency fund, the provider will most likely ring-fence a set amount of the total investment (for example 12 months’ income) and keep that in rands in order to pay your income to you in rands. The practical arrangements may differ slightly from one provider to another but in essence, you will not be allowed to receive the funds offshore.

Note, however, that once you have received your income in rands you may transfer it to your offshore bank account, either as part of your R1 million annual discretionary allowance or alternatively after obtaining clearance from the South African Revenue Service (Sars). You may apply for clearance of up to R10 million per annum.

If you do not need any of the income locally, you may want to consider changing your life annuity income draw to an annual income payment at your next income review.

This will save you the trouble of going through the process to convert and transfer the rands every month.

Take care to ensure that you understand the costs of transferring the funds offshore.

Every transaction will have various fees:

  1. SWIFT fee – usually a set amount expressed in rands; this is a fee paid for the bank’s use of the ‘Society for Worldwide Interbank Financial Telecommunication’ messaging services;
  2. The bank’s ‘margin’ – this may be expressed as a percentage, or in cents. Either way, it will be a few cents on top of the exchange rate you may see on a website like xe.com or Reuters; and
  3. Intermediary charges – similar to the bank’s fee, this will be another amount added to the live exchange rate.

It is very difficult to compare rates from different providers because the exchange rate changes every second.

Ask a few providers to quote their fees to you as a percentage. If you are talking to a bank, they need to confirm points 1 and 2 above. If you are dealing with an independent forex provider, check all three of the above costs. Some may hesitate to do so and insist on only quoting you an exchange rate. While we cannot categorically state that these providers are expensive or give poor rates, it is unfortunately just not possible for you to really know what you are paying, so we generally recommend that you stick to providers that are willing to break down their costs for you in a transparent manner.

This is, of course, true for every provider you deal with, not just forex brokers!

Global & Local can assist you when you need to select the most suitable annuity product as well as guide you through the process to transfer the funds offshore with the necessary tax clearance in place. Please feel free to contact us directly on 011 486 2500 or info@globallocal.co.za should you need any further assistance.

Do you have any questions you would like answered by registered financial planners?

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