Emigrating? Changes to retirement savings


The 2021 mid-year population estimates, released by Statistics South Africa, estimate that around 91 000 South Africans have left the country during 2016-2020.

The question begs, is a retirement savings investment still worthwhile when emigration remains a potential future option for your clients?

The concept of retirement

Looking at the concept of retirement, as soon as an individual starts earning an income, saving for when he or she can no longer draw a salary becomes an important part of the their financial plan.

If, for example, the individual earns an income from 25 to 65 years of age – that gives them a window of 40 years to save. If they are healthy, and likely to live a long life, there is the possibility that they will need to draw on their savings for 25 years post retirement: 65 to 90 years. This means the individual needs to have saved enough money during their working years, to draw an income for a further 25 years.

During the window period of earning an income, however, individuals and families are not only saving for retirement, but some will need a deposit on a first home, a car, school fees to name a few. It is highly likely that the first 10 years of anyone’s career, just managing to meet expenses, will be a reality. Therefore, the saving period is likely reduced to 30 years (or less).

So, assuming there are no unexpected financial events or surprises along the way, your client has 30 years of saving, to provide him or her with 25 years of income, when they can no longer work.

Financial considerations of emigrating

Emigration requires several financial considerations including (and not limited to) ensuring that your client’s tax affairs are in order. If the client has accumulated savings in a retirement annuity the question remains – has this been a worthwhile investment platform?

Contributions to a retirement annuity are tax deductible1. However, a retirement annuity can only be accessed from age 55. Your client is entitled to the first R500 000 of his or her retirement annuity, tax free, and the balance must be used to purchase a compulsory or living annuity paying the client a monthly income.

Amendments to SARS regulations

Amendments made to regulations regarding emigration, specify that if a retirement fund member can prove that they have been living abroad for three years or more, they may access their retirement savings.

This makes it easier for people who left the country some time ago, however, those who are thinking about emigration face financial choices.

Retirement savings are intended to be used for retirement, and due to the costs of emigration, many people end up using their retirement savings to cover these costs. The three-year access restriction would limit the use of these savings for other expenses.

Wait to access savings or forfeit benefits

Your clients need to decide whether to wait to access retirement savings, with tax benefits on current earnings, or forfeit the tax benefits, for access to funds.

It is important to add that growth in a retirement annuity has limitations, due to the regulated asset allocation. The basic underlying limits imposed under Regulation 28 of the Pension Funds Act states:

  • 75% in equities;
  • 25% in property either local or international;
  • 30% in foreign investments excluding Africa. And
  • 10% in Africa, not counting South Africa.

If, however, your client invests their savings in a non-retirement product, they forfeit the various tax benefits. A non-retirement investment does not have Regulation 28 limits, thereby allowing a broader opportunity to target higher returns in offshore/other markets.

Financial and tax advice

Brokers play a critical role in rendering financial and tax advice to clients who want to emigrate, with an investment framework that is structured with the client’s own personal goals in mind.

Elena Bevilacqua
Certified Financial Planner ® professional
Fiscal Private Client Services



1&2. Pension, Provident and Retirement Annuity Fund Contributions

Contributions to a pension, provident or retirement annuity fund during a tax year are deductible by the member of the fund. The deduction is limited to the greater of:

  • 27.5% of the employee’s remuneration for PAYE purposes (excluding retirement fund lump sums and severance benefits); or
    • 27.5% of the employee’s taxable income (excluding retirement fund lump sums and severance benefits).

The deduction is limited to a maximum amount of R 350 000. Ref: SARS>Individuals>Tax and Retirement