If South African expatriates that are thinking of a making withdrawal from the savings pot of the two-pot retirement system, then they need to get their timing right.
This is according to Tax Consulting SA.
The two-pot retirement system, which came into effect on September 1, 2024, allows people to a part of their retirement savings from the savings pot before retirement age.
Tax Consulting SA said that there is now a golden window to access retirement funding, particularly SA expats who have left the country a long time ago and decided to park their retirement for a later day.
Tax Consulting SA said that there is little guidance for expats on when making a withdrawal from the savings pot would be in their best interest.
“This may be because retirement fund administrators and local advisors also continue to earn a return on investment for as long as an expatriate’s funds remain within their control,” Tax Consulting SA said.
The National Treasury is clear that retirement money in the savings pot should be used for emergencies.
Financial advisors say that it is best to keep the money invested, because those that don’t withdraw will have more savings at retirement. Withdrawals are taxed at the taxpayer’s marginal rate and have a service fee.
Here are three things expats should consider before making a withdrawal.
Timing
Currency and exchange rate performance
According to Tax Consulting SA, when making a withdrawal, exchange rate fluctuations are crucial from a timing perspective.
Keeping this is mind, expats cannot ignore the benefit of making an informed decision when withdrawing from their retirement savings while the market is in their favour.
Currently the exchange rate between the rand and the dollar is at its best levels in 12 months.
Savings Pot immune to three-year lock-in rule
Expatriates are permitted to make one withdrawal per tax year (March 1 to February 28) from their savings pot.
Tax Consulting SA said that this money can be helpful for those expatriates who need it abroad, as it will not be tied up for three years.
Since, the three-year lock-in rule came into effect in March 2021, people who are no longer SA tax residents, must maintain this status for at least three consecutive years before they receive their money from their preservation fund.
“Where you have the legal basis to back-date your financial emigration, which is not an easy Sars process; you can access your whole retirement savings before it has been annuitised,” Tax Consulting SA said.
“Arguably, as an expatriate abroad, you should never select the annuity option before you have obtained specialist advice.”
Employers not paying contributions to retirement funds
Making a withdrawal would trigger the need for a compliance check to ensure that expats employers has been contributing to their retirement fund.
This is underpinned by a report from the Financial Sector Conduct Authority (FSCA) in March 2024, that confirmed that over 4,000 employers have historically not been making contributions towards their employee retirement funds.
Tax compliance
Tax compliance is the starting point for expats abroad that want to make withdrawals from the savings pot of SA’s new retirement system.
Any non-compliance in SA will lead to a deduction from the withdrawal amount to settle any outstanding tax to Sars.
This means that any request for a withdrawal from an expat’s retirement savings in SA, will require a tax directive from Sars to confirm tax compliance.
Time is of the essence
According to Tax Consulting SA, it is crucial that expats consult with two-pot specialist who can navigate the implications relating to withdrawals.
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