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Should I invest in a South African RA if I will be emigrating in the next two years?

Would it be wiser to invest in a tax-free savings account or a normal investment account?

I am 24 years old and have been employed for just over 1.5 years. I have not invested in a retirement annuity (RA) at present (my company does not offer pension fund contributions either).

I was recently researching investing into an RA as I would like to start saving for retirement – the EasyEquities RA seems perfect for me as I want to pay the lowest fees possible.

However, I am planning to emigrate to the Netherlands (I have a Dutch passport) in the next one to two years.

Question:

Should I start investing in a South African RA if I will be emigrating to Europe in the next few years? What are my options here and how best should I move forward i.e. would it be wiser to invest in a tax-free savings account (TFSA) or a normal investment account and not a RA?

All advice is welcome.

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Emigrating to the Netherlands must be very exciting but I am sure that you are equally anxious about your future adventure.

Your question of whether you should start investing in a South African-based retirement annuity before you emigrate has a simple answer – no.

Although retirement annuities offer very attractive tax incentives to individuals, one must be mindful of the limitations to access the capital prior to retirement. Under the new legislation, you must cease to be a taxpayer for a period of three years before you will be allowed to access your RA proceeds. The proceeds will also be subject to retirement withdrawal taxes.

The biggest factor however in my opinion is the limitation of Regulation 28, where you cannot invest more than 30% in offshore assets.

The fact that you will be living, earning, and retiring in euros does lead to a portfolio that should be euro- and hard currency-biased.

Before you decide how and wherein to invest, there are some factors that you must consider:

  • Have you set aside sufficient funds to fund the costs of your emigration?
  • Will your emigration costs be funded in rands or euros?
  • Do you have debt?
  • Do you have sufficient cash in euros to set you up in the Netherlands?
  • Are you familiar with your investment options in the Netherlands?

If you currently have debt, your first goal should be to pay off the debt prior to emigration – especially credit card debt.

Your second goal should be to accumulate sufficient cash in both rands and euros to make the transition from South Africa to the Netherlands as smooth as possible.

If you are in the fortunate position to have sufficient cash in euros and rands and your emigration costs have been secured, then it will make sense to start investing in a TFSA. Currently, the annual contribution towards TFSA investments is limited cumulatively to R36 000 per tax year and the investment is tax-exempt. This is particularly important when you cash in the investment when you emigrate, seeing that no income tax or capital gains tax will be levied on the growth in the TFSA investment.

You can also invest in a TFS investment with 100% euro exposure. Normal investment principles apply, namely the longer the anticipated investment term is, the more equity exposure you can include in the investment and vice versa. If you need to accumulate cash, then invest in a euro cash feeder fund within the TFSA. The TFSA will eliminate capital gains tax on currency depreciation should the rand depreciate against the euro over the next two years.

If you are in a position where you have additional capital and a fair amount of free cashflow monthly, then you can consider investing directly offshore via one of the offshore platforms. When you are in the Netherlands you can continue with the investment.

Once you are settled in the Netherlands you can explore its equivalent to retirement annuities and its tax-free investments.

Enjoy your last two years in South Africa. I am sure you will be back to visit our great country.

Good luck with your future endeavours.

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

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Definitely not, the admin is horrendous from the SARS side.

Lucky chap -to have a Netherlands passport and be 24 years old!
Good luck. Yes-the weather is worse in Netherlands but travel into Europe, earnings, interest rates, inflation, crime, education , health care, governance and human values are much better than in this failed state!

Goodbye

There goes your tax base! Another one…and then another…

The fiscus will be ok. He’s 24 with 1.5 years experience. He doesn’t even receive a company pension. So he’s probably on an internship.

He will be replaced by someone else, who will do the job and pay tax. The unemployment rate will decrease. Win win.

Why are we still replying to this buntface? Just leave him alone…

Team up, report and ignore.

You really are a despicable oxygen user.

Me thinks “Oxygen Thief” would be more appropriate!

@EFF. Does NOT sound if the fiscus is “Okay”, when we come to each FEB’s annual Budget Speech.

Robert from Sydney?

There are some similarities.

Are you sure you are not “Robert from Sydney”?

Eventaully you run out of people who can replace those who leave. Why are you hiring doctors from Cuba and paying them 6x what a local earns?

Myopic EFF Commie. Makes me laugh every time!

The answer to the header question is simply NO!

Are the VBS Bank looters in jail yet ! Some things we don’t talk about when we full blooded commies and hypocrites …..

Enjoy but first check out how it is to live in the Netherlands. Personally for me if wasn’t nice. People will never really accept you and the most liberal person in SA would be considered conservative in the Netherlands.

I wouldn’t invest in a South African RA full stop. Investinging SA is one thing, investing in a reg 28 vehicle in SA something else

Bad advice to young people who can benefit from RA tax incentives. The refunds they get from SARS they can use them to invest some where else. Yes taxes are delayed until someone retires later. Very few investments can beat RA benefits in terms of the annual refunds that one gets from SARS.

Khande. If you believe that SA will still exist in its present form 25 years from now, then I suppose it is a bad advice. However, over the past 25 years, the country has markedly deteriorated, corruption has spiraled out of control, unemployment skyrocked, and to top it all off there is zero accountability in government.

eggheadonist, I am not saying we dont have our own problems here but to say that to invest in SA RAs is bad is not supported by facts. Majority of these RAs are still giving returns that are above the fake inflation. In SA you are not going to see the crazy price movements that you see in the USA because government does have the luxury to print more money. Whatever is going on in the USA is not sustainable with a debt of about 30trillion and overpriced stocks? Majority of the companies in the west have bad dividend yields.

@ khande

Well considering that a RA is in nature a very long term investment (30-40 years) you have to consider the risks over such a term. Let me list some pros / cons (please feel free to add or disagree):

Pros:
1. Sizeable Tax incentive

Cons:
1. South Africa’s Fiscal position
2. South Africa’s Economic outlook
3. Government planning to use prescribed assets to use our pensions
4. Regulations keep changing (meaning there is no certainty what regulations there will be in 30-40 years time)
5. Limited in what assets you can invest in
6. South African returns have been way below the developed economies over the last decade and considering the above risks I do not see this changing. At best the local returns will match the developed economies though I highly doubt this will even be the case.

Me personally have kept my RA contributions at my employer’s minimum and took the tax knock and emigrated those funds. They have not only outperformed my RA but has recovered my tax knock as well, meaning I haven’t lost any money and I now have no limitations that my RA has.

Also my emigrated portfolio serve an important role as a hedge against the local risks as these funds are denominated in USD, GBP & EUR and are already emigrated and out of reach if the government and SARB change regulations when the fiscal position deteriorates further.

If you’re in the lower tax brackets (and/or leaving next year), sure, the RA benefit can’t outweigh the admin and other costs.

At the top though the RA deduction is massive, effectively contributing to your saving at your marginal rate, up to R 157k. This “free” money then compounds from day one.

It seems implausible that this can be beaten, for a given level of risk.

You’d be mad to. Apart from the reasons cited in the article you’ll also be taxed twice under the new rules. First time in SA on emigration (although this tax bill is deferred until withdrawal, it accrues interest in the meantime). And most probably a second time by the Dutch when you actually withdraw the funds (after 3 years of tax residence abroad) since most DTAs award taxing rights on pensions to the country of residence.

Absolutely NOT : That’s all the adviser needed to say !!
The chap is emigrating shortly and just starting work so unlikely to gain any major tax deferral benefits : It’s not even up for discussion under those circumstances :
However retirees should invest in RA,s post retirement every Feb ,then transfer same to a Living Annuity one month later :
Massive both tax and estate duty benefits : works like a charm.

Rather keep your cash in the bank or spend it.

TFSA with ETF’s (foreign). Then cash in when you go?

Oh. And some Bitcoin.

Strange question. It’s like stating “I need access to my funds by the coming weekend, should I invest in a 60-month Fixed Deposit?”

RA’s perform better in the long run. Why? Commissions are loaded mostly upfront, in case you make the policy “paid up” within the first 2 years, commission will gobble your funds up.

No wait….invest in RA for 1,5 years if:
(i) you want to help your best-mate fin advisor to earn some commission,
(ii) to keep your tax person busy and employed, by later doing your financial emigration, and by doing your SARS Emigration Tax Clearance….so that the insurance company can pay you what is left after commission claw back.

But you can skip all this….

Young man – buy yourself some Kruger Rands. You will see they will come in handy.

Best advice. If you cannot afford a full Kruger Rand google Krugerbits. You can put a stop order on your bank account and buy Kruger bits till you have a whole Kruger Rand.

Pray, wat are the implications of going through customs with a few Kruger Rand’s in one’s pocket?

End of comments.

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