Tag Archive for: Retirement

Andrew Stegmann
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March 2021 a Watershed for Retirement Funds in South Africa: 5 Things You Need to Know

1 March 2021 marks a watershed for retirement funds in South Africa, says Jean du Toit, attorney and head of tax technical at Tax Consulting South Africa.

Most are focused on the annuitisation rules that have been pending since 1 March 2015, otherwise known as ‘T-day’.

While these reforms are significant, retirement fund members need to understand them in the grand scheme of things.

T-day reforms

Back in 2013, the then minister of finance, Pravin Gordhan, tabled proposals directed at the governance, preservation, annuitisation and harmonisation of retirement funds.

Initially, T-day was earmarked for 1 March 2015, but was postponed as a result of ongoing “consultations” with stakeholders.

Many will be aware that from 1 March 2021, members of retirement funds will be subject to the annuitisation rules, which means that they will only be able to withdraw one-third of the value of their retirement fund by way of a lump sum, where the balance must be withdrawn as an annuity.

The annuitisation rules do not apply where the retirement interest does not exceed R247,500, or to amounts contributed on or after 1 March 2021.

Withdrawal on emigration

Currently, members of retirement funds can immediately access their funds in a preservation or retirement annuity fund when they emigrate from South Africa, if such emigration is recognised by the SARB.

In terms of the latest Taxation Laws Amendment Bill, from 1 March 2021, withdrawal will only be permitted if the member can prove they have been non-resident for tax purposes for an uninterrupted period of three years.

This means an effective three-year lock-in of retirement funds from the effective date.

Importantly, for those who plan on leaving in the near future, in terms of National Treasury’s response to public comments on the amendment, members will be allowed to withdraw their funds under the current dispensation if they file a complete application before 1 March 2021.

Prescribed assets

The ongoing whispers of “prescribed assets”, where the government effectively wants to unlock retirement funding for investment in government projects have made South Africans very anxious. The government’s main hurdle in implementing this policy is Regulation 28 under the Pension Funds Act No. 24 of 1956.

Regulation 28 would have to be amended to effect this policy, as it requires a fund to act in the best interest of its members.

The ANC’s stance on this has not been consistent, but the latest hereon can be drawn from the Medium Term Budget Policy Statement where the minister of finance said that “government has initiated a process to review Regulation 28 to make it easier for retirement funds to increase investment in infrastructure – should their board of trustees opt to do so.”

He further noted that a draft gazette will be published in due course for public comment, so it seems that this policy will be implemented in some shape or form.

Rules that remain unchanged (for now)

It is important to understand that the annuitisation rules are largely directed at aligning retirement funds with respect to annuitisation; but this should not be conflated with the idea of compulsory preservation.

For example, currently, you are permitted to take your full withdrawal benefits from your pension fund in cash upon termination of your employment. Some may understand the new rules to mean that this would no longer be possible, but this is not the case – this rule remains intact – for now.

More changes coming

Further to his comments on Regulation 28, the minister of finance also said that “Government will present legislation next year to allow for limited pre-retirement withdrawals under certain circumstances linked to mandatory preservation requirements.”

National Treasury mentioned this policy will allow access to retirement funds during times of crisis, but mandatory preservation, which was part of the agenda initially, looks like it will be part of the equation.

While changes are implemented progressively, fund members should keep their ears to the ground, as the government’s policy on retirement funds appears to be a moving target.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

Andrew Stegmann
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The 10 Most Popular Estates in South Africa to Retire To

New data from analytics group Lightstone shows which estates in South Africa are drawing the most retirees.

According to Lightstone, which has been tracking the retirement property industry for the last 20 years, the sector has evolved from limited options to now include an array of lifestyle estate options, sectional title or lock-up-and-go as well as the upmarket coastal home.

In a view of the total volume of properties transacted over the last decade the group noted that the majority of transfers were conducted in Gauteng with the most transactions (2,883) in 2013 with Western Cape showing a slight peak in 2017.

Esteani Marx, head of real estate at Lightstone said that the trend of Gauteng enjoying the most collective transfers is not surprising as the most property transactions across demographics and value bands transpire in this province.

“When we investigate the value bands in the retirement category, the view is rather different over the last decade,” Marx said.

Gauteng enjoyed higher transfers in value from 2010, and remained the front runner for the next six years. From 2015, transactions in the higher value bands started to climb in the Western Cape and continued to do so until late in 2019.

During 2018 the variance in value between Western Cape and its closest competitor, Gauteng was more than R1,000,000 and compared to Kwazulu-Natal over R2,000,000.

Lightstone has consistently reported that the property market in the Western Cape has been higher in value vs volume over the last several years.

“In a holistic view of the top ten most popular estates for the 60+ market in terms of volume, five are located in the Western Cape making the Mother City the most attractive retirement destination with 754 transactions since 2018,” Marx said.

Analysis of South Africa’s top 10 most popular estates in the retiree age bracket (over 60) indicates that Waterfront Residential Estate had the highest volume growth since 2018 with 320 transactions, followed by Euphoria Golf Estate located in Modimolle with 314 transactions and thirdly, Urban Ridge South Retirement Estate based in Midrand with 232 transactions.

In the Western Cape, estate living is the most popular property type in contrast to Gauteng and Kwazulu Natal where sectional title is the most sought after option, and a much smaller percentage of transactions occur within estates.

As indicated in the below graph, Marx notes that freehold properties, which are usually the most popular choice across age and income groups is far less attractive to this age group with a fractional volume compared to the other two options.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

Andrew Stegmann
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Warning Over Government’s Plans to Change South Africa’s Emigration Finance Rules

A number of tax and financial groups have issued warnings over a new draft bill which will introduce changes for South Africans looking to take their retirement funds out of the country.

Under the current system, members of preservation funds and retirement annuity funds may withdraw from such funds if they formally emigrate from South Africa for exchange control purposes and their emigration is approved by the South African Reserve Bank

However, changes in the draft Taxation Laws Amendment Bill (TLAB) will effectively phase out the concept of emigration for exchange control purposes.

The amendment will mean that South Africans emigrating from the country will only be able to make a withdrawal when a retirement fund member has ceased to be an tax resident and has remained so for a consecutive period of at least three years.

The change has come under fire as the TLAB was the subject of public hearings in parliament on Wednesday (7 October).

Impractical and draconian

“The proposed requirement that an individual be non-resident for a period of three years prior to being entitled to access retirement funds is impractical, draconian and will present administrative difficulties for both SARS and taxpayers,” said professional services firm PwC in its submission.

The firm said that where an individual permanently departs from South Africa, the proposed rules could – depending on the particular circumstances of that individual – result in considerable financial hardship for an extended period of time before retirement funds are available.

“Under the current rules, a person who emigrates is entitled to withdraw their retirement funds immediately. Under the proposed rules, they would now need to wait for at least three years before being able to do so,” the firm said.

“Retirement funds are frequently required by emigrants to make emigration financially viable and the proposed rules will severely impact this.”

As an alternative, PwC recommended that the proposed three-year residence rule should be replaced with another ‘more practical rule’.

“For example, it could be linked to a person ceasing to be ordinarily resident in South Africa – as opposed to necessarily not tax resident,” it said.

The opposite of modern

In its submission,  Tax Consulting SA said that the amendment is at ‘cross purposes’ to its intended goal of a more ‘modern’ exchange control system.

It highlighted that under the new system , retirement benefits will effectively be locked in and will be inaccessible to the individual in question for a minimum period of three years, even after they have left South Africa permanently.

This restriction will only be lifted once the taxpayer in question is able to prove they have been non-resident for an uninterrupted period of at least three years.

“By any measure, this new test is the opposite of modernisation and a step back towards locking in retirement funds after becoming non-resident for tax and exchange control purposes,” it said.

“Furthermore, if the test is to be based on residency, it is not clear why withdrawal is subject to a period of three full years. If the taxpayer has ceased residency, why impose a punitive lock-in of this extent?,” the firm asked.

Tax Consulting SA that the proposed amendment will do away with a well-established process that allows emigrants to freely expatriate their retirement benefits with one that is far more restrictive and less transparent.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

Andrew Stegmann
,

Financial Emigration: Changes to the Withdrawal of Retirement Funds in South Africa

This information was provided to us courtesy of JJ Accounting Services Mauritius.

The draft Taxation Laws Amendment Bill (“TLAB”) was published on 31 July 2020. As announced in the Budget Speech, any South African leaving in future will be subject to a much stricter process from 1 March 2021 onwards.

The amendment comes as no surprise, as government made its intentions clear in the February 2020 Budget Speech, per Annexure C to the Budget Review: “As a result of the exchange control
announcements in Annexure E, the concept of emigration as recognised by the Reserve Bank will be phased out. It is proposed that the trigger for individuals to withdraw these funds be reviewed”.

Current position

Under the current dispensation, taxpayers may withdraw their retirement funds prior to their retirement date, upon emigration for exchange control purposes, where such emigration is recognised by the South African Reserve Bank. This concession is provided for in the respective definitions of “pension preservation fund”, “provident preservation fund” and “retirement annuity fund” (collectively referred to as “retirement funds”) in section 1 of the Income Tax Act No. 58 of 1962 (“the Act”). Each definition makes provision for withdrawal where a person “is or was a resident who emigrated from the Republic and that emigration is recognised by the South African Reserve Bank for purposes of exchange control”.

In essence, the above proviso permits a person to withdraw his retirement benefit upon completion of a process of emigration through the South African Reserve Bank.

Proposed amendment

The proposed amendment follows the February 2020 Budget Speech, where the government made its intentions clear to overhaul this process as part of the modernisation of its exchange control system, as stated in Annexure C to the Budget Review: “As a result of the exchange control announcements in Annexure E, the concept of emigration as recognised by the Reserve Bank will be phased out. It is proposed that the trigger for individuals to withdraw these funds be reviewed”.

The TLAB, specifically paragraphs (h), (k) and (m) of section 2(1), gives effect to this decision, by amending the proviso to the aforementioned definitions in section 1 as follows: “is a person who is [or was] not a resident [who emigrated from the Republic and that emigration is recognised by the South African Reserve Bank for purposes of exchange control] for an uninterrupted period of three years or longer” (emphasis added).

In other words, reference to the emigration process is substituted with a new test that requires a person to prove they have been non-resident for tax purposes for an unbroken period of at least three years. This new test will apply from 1 March 2021. How this must be proved other than ‘financial emigration’ remains unclear at this stage.

Practically, as from the effective date of 01 March 2021, retirement benefits will be locked in South Africa for at least three years. The proposed amendment signals a big policy shift from a fiscal perspective, but this is one piece to a bigger puzzle that should have those who seek to emigrate on high alert.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].