Cancelling Retirement Annuity - Help needed

[Marcie]

Hello all

Been a while since I've been on the site but I'm desperately needing some advice. I'm sure plenty has been discussed regarding this topic already but don't have time to sift through past discussions.

I will be moving over to Brisbane end of April so busy tying up loose ends.

I have a retirement annuity with Momentum which I would like to cancel but I remember seeing somewhere that this can only be done when you "officially" immigrate. Excuse me if I sound stupid here but can someone please clarify this "official immigration" concept to me.

I want to apply for dual citizenship when the time comes and will still be keeping my FNB bank accounts open for sometime.

What are the legal/tax implications regarding all of this?

My thoughts are sounding very scattered so please excuse them but that's how one goes when time is ticking by so fast.

Any help will be greatly appreciated.

[Tazzn]

HI Marcie

I am not an expert on this and not 100% sure what process to follow to proceed with financial immigration but I know that this is definitely required if you want get the money out of your RA.

The financial immigration does not affect your ability to apply for dual citizenship at a later stage but the problem with it is that you can't keep you accounts open. From what I understand your money will go into something called a blocked rand account.

What we have decided to do is not formally/financially immigrate and rather put a stop on our payments going into our RA's. This worked for us as our RA's are small and having them paid out immediately is not imperative. So basically your RA stays as it is with the amount that's in and just earning some interest there are no more monthly payments going into it from our side.

We will then be able to keep a bank account going and when we are 100% settled and ready to close our SA bank account we will do this and then do the formal immigration process. As far as I understand this can be done from Australia and most of the companies that assist with money transfers can also assist with this

[Marcie]

Thank you Tazzn

You have been a tremendous help with the info you provided and I think it will be best ifmi also just put a stop to my RA payments until I'm ready to do the whole formal immigration story.

Thanks again

[Black]

Hi Marcie,

I had a chat with Cashcows, they can help you with all of your questions.

Werner Kriel [werner@cashkows.com]

[Maligso]

I have just put a stop on my payments to my RA's (Called making them "paid up") and will be doing as Tazzn says. My understanding is exactly as Tazzn's above.

[Tiermelk]

Making the RA

I have just put a stop on my payments to my RA's (Called making them "paid up")

Hi Maligso, I presume you had to pay a rather large "fee" to do so?

[Tazzn]

Hi Tiermelk

We paid no fee at all to make our RA's paid up. Basically you are leaving whatever money is in the RA still invested with the company but are choosing not to pay more towards it.

[Bob]

Just moving on from cancelling your RA in South Africa. . . . .

When you get to Australia, you'll begin working and getting a wage / salary. Superannuation will also be paid into a super fund at the rate of 9.5% of your gross overall wages / salary.

Now . . . . . since 1st July 2005, you have the legal right to nominate any superannuation fund that will accept your 9.5% of gross wages.

Say, as an example, you get A$1,000 a week in wages. An EXTRA 9.5% of that $1,000.00 (= $95.00) will be stashed away by the pay clerk of the company, and at the end of each quarter (three months) that gets sent in one lump sum into your super fund of choice (a super fund which you have nominated and chosen to take your Superannuation contributions)

Every type of work in Australia has a professional association or trade union to represent the workers in that industry, or type of work.

They have set up "Industry" Super Funds to take and accept your super contributions.

These "Industry" Super Funds don't pay fat commissions to financiers and investment professionals, unlike the commercial super funds (such as super funds run by the banks, etc)

Industry Super Funds are also, "not - for - profit" superannuation funds. This means the returns you get on your money each year doesn't get syphoned off to pay the dividends of the shareholders of the commercial super funds.

When looking at the returns of Industry super funds as against commercial super funds over a 3 year, 5 year, 10 year and 25 year period, the Industry super funds consistently give a better return to their fund members than the commercial super funds.

This was highlighted lately, that the average Australian worker would need to work between 8 years and 11 years longer to achieve the same overall return on retirement if they put all their super contributions into a commercial super fund (paying commissions to financial advisers and dividends to the shareholders of the super fund) rather than into an Industry super fund (paying no fat commissions on its investments and runs at not-for-profit)

I've been in the Australian workforce for many years (over 40). I retired at 55 and have lived off my superannuation for the past 8.5 years, travelling and enjoying my early retirement. I will get my Old Age Pension from the Australian federal government in 15 months time (May 2016) when I turn 65.

So . . . . one day, you also will be retired. Don't think you won't be. That day will come sooner than you think.

When I was working, I was the superannuation bloke at work. The fellas used to bring me their super figures, I'd have to crunch the numbers and let them know what they'd be worth once they took their retirement.

I have seen many blokes make some really dumb life choices in the course of their working life, such as not biting the bullet and buying their own house and still having to pay rent to a landlord when they retire on a smaller income.

Some switched their superannuation out of lucrative income streams into lump sums that won't sustain them in the last years of their lives . . . . silly move!

Don't make dumb choices.

Do your homework, check out some of the INDUSTRY super funds. Check out their returns over long term periods and what their fees and charges each year are, compared to the glossy brochures that commercial super funds will show you.

http://www.industrysuper.com

Australian super funds will accept contributions from overseas if voluntarily put in. That will then go on to make money for you which will be available to you once you choose to leave the workforce in Australia and retire.

Australia, like just about every other Western country, has an ageing population and the old age pensions in future years will be very strictly monitored and hard to get. You'll need to be very poor to get it and it will only be enough to keep you in a basic lifestyle . . . . no overseas travel, no smartphones, no internet, no restaurants.

This is where your retirement savings accumulated during your working years will begin to pay you handsomely, in giving you more than a "basic" existence, because the lifestyle you have will be directly related to how much you've saved in your working life.

Edited January 10, 2015 by Bob

[Belindaf]

Very useful information, thanks Bob

[GregAnd]

Hi Marcie,

I am busy going through this exact same process with Momentum (having RA's paid out).

What I needed to do was the following:

• Create a non-resident account with my bank (Nedbank). They basically convert an existing account to non-resident the day you leave the country.
• To create this account there are a number of requirements the bank will need, but you will need to check what the FNB process is as it may be different to Nedbank

This is the list of requirements for Momentum members who are the process of emigrating (the member still lives in South Africa):

• Tax clearance certificate: this is an IT21(a) (This is required as part of the above process of creating a non-resident account at the bank so you can use the same one you give to the bank)
• MP336 ( form - (This is required as part of the above process of creating a non-resident account at the bank so you can use the same one you give to the bank)
• Copy of your passport
• Proof of Australian Permanent resident visa grant
• Momentum Application to exercise a retirement option form - Can be obtained from calling Momentum call centre
• Letter from the authorised dealer that confirms that the emigration has been placed on record with the SARB. This letter must also refer to the blocked non-Resident account. Momentum will only pay the proceeds to a blocked non-resident account that is so confirmed by the authorised dealer. No payment may be made to any other account even if it is in our member’s name.
• South African tax number.
• SARS also requires a New form: Special Power of Attorney to be signed by our client before they will provide any information to a Momentum employee. The POA must authorise any Momentum employee to obtain information from SARS (can be downloaded from the SARS site).

Once you leave the country and they have all the documents it takes another 6-8 weeks for the RA to be paid out.

Hopefully this gives you a bit more info to go on.

Good luck!

Cheers

Greg

[StevePorter]

Hi Guys

I thought it may help to add my comments to this thread.

With a retirement annuity there are basically three options available to you when you move overseas to live:

1. Retain the policy and continue to pay the premiums monthly. If you cannot claim relief for such premiums and later decide to surrender the policy such are classed as disallowed contributions and can be used to offset the tax payable to SARS.

2. Leave the policy in place and make it paid up. There may be penalties payable but this will depend upon a few factors such as policy type, length of time to original maturity date and the individual insurer.

3. Surrender the policy and transfer the proceeds out of SA. As part of the process your policy will need to be made paid up and the comments in point 2. above would apply. There may also be penalties to surrender the policy early: rules allow the insurer to levy charges up to a maximum of 30% but we don't see this too often.

To surrender a retirement annuity in full you must complete the financial emigration process - you will need to evidence such status to the insurer before they will release funds.

Financial emigration is not to be confused with "immigration", it merely refers to the process which changes your exchange control status in South Africa from "financial resident" to "financial non-resident". It does not affect your South African citizenship, your birthright, the right to retain a South African passport, or the right to return to the country in the future.

It can however be a complicated process particularly if you hold other assets in South Africa and it's very important to do it correctly.

I'm happy to help if you have any questions; just mail me at steve@cashkows.com or call me on 00 27 72 810 0315.

Regards,

Steve Porter

cashkows.com

[Stevethevet]

Hi All,

I am emigrating end of this month. With regards to cancelling RA's, I have checked into this and my RA's with Sanlam will be penalised 30 % if I cancel them! According to my PPS broker there are moves to make it illegal (?) to penalise someone so much (consumer protection act?). Is anyone aware of this? Is there anything else I can do so that I don't get penalised so much? Should I wait and see if there is a lessening in the penalties?

If I have to keep my RA's going on this side (to avoid the penalties), can I get any tax relief on the Australian side?

Any advise would be much appreciated.

Kind regards

Steve

[Shampoo]

The definition of ‘retirement annuity fund’ has been amended with effect from 1 March 2008, to allow a member who discontinues his/her contributions prior to his/her retirement date to be entitled to the payment of a lump sum benefit where a member emigrated from the Republic and that emigration is recognised by the South African Reserve Bank for purposes of exchange control. • The definition of retirement annuity fund allows a member who qualifies in compliance with emigration requirements to withdraw his/her benefit only before his/her retirement date. • Employees’ tax indicated on the tax directive is determined on the taxable portion of the lump sum benefit payable after the allowable deductions in terms of the Second Schedule to the Act were taken into account. • The RA Fund administrator must complete a manual Form C and attach the necessary relevant material. • The following documents must be attached to Form C and submitted to a SARS Branches for consideration:  A copy of the IT21(a) ‘Application Form for Tax Clearance Certificate’ in respect of emigrating from SA together with the signed and bank stamped MP336, and  A letter (on a letterhead) from the authorised dealer confirming the emigration.  Where the taxpayer has reached the age of 55 years but has not yet reached the retirement age in terms of the policy contract a copy of the policy contract, together with an extract from the rules of the fund pertaining to the definition of retirement date, retirement benefit and emigration withdrawal benefit must be attached to the Form C.

• Where the emigration has already occurred the following documents must be attached to the Form C and submitted to a SARS Branch for consideration:  The member’s certificate of residency obtained from the relevant Tax Authority of the country in which the member resides;  A copy of the tax clearance certificate in respect of emigrations issued by SARS, and  A letter from the authorised dealer (on a letterhead) stating the, account holder’s name, account number; and that the account is blocked;

OR

 the authorised dealer (on a letterhead) has to confirm that there is no blocked fund account, that EFFECTIVE DATE 2013-02-28 REFERENCE GUIDE – TAX DIRECTIVE: EMIGRATION IT-AE-33-G01 Revision: 2 Page 5 of 5 the emigrant does not have to open a blocked fund account and the said authorised dealer will remit the cheque directly to the emigrant’s account overseas;

 Where the taxpayer has reached the age of 55 years but has not yet reached the retirement age in terms of the policy contract a copy of the original policy contract, together with an extract from the rules of the fund pertaining to the definition of retirement date, retirement benefit and emigration withdrawal benefit must be submitted with the application form. NOTE: Only a certificate of residency issued by the Tax Authority of the country in which the member resides in accordance with the double taxation agreement (DTA) between SA and the country of residency will be accepted. If there is no DTA the member must still obtain a certificate of residency from the Tax Authority. • If the taxpayer has emigrated from the Republic of South Africa longer than five years prior and cannot produce the tax clearance certificate that was issued by SARS during emigration, an affidavit must be provided wherein the taxpayer declares under oath that he or she has lost the tax clearance certificate issued by SARS during emigration. NOTE: Where the member has reached the retirement age in terms of the policy the lump sum cannot be paid in terms of par ( (x)(dd) of the definition of ‘retirement annuity fund’ in section 1 to the Act (Emigration withdrawal). The normal retirement procedures must be followed

The highlighted part in my post above makes me wonder if the "Official Emigration" is necessary.

Edited March 2, 2015 by Shampoo

[GarethDavies]

Just remember RA's under R70 000 can be cancelled so for those with a few little ones around just get an adviser that side to do it -- cheap as chips!

[Tazzn]

Gareth would this mean no formal emigration is necessary to have an RA under R70 000 paid out?

[Tiermelk]

Just remember RA's under R70 000 can be cancelled so for those with a few little ones around just get an adviser that side to do it -- cheap as chips!

Should that be R7 000?

(https://moneysmart.co.za/community/2013/04/retirement-funds-withdrawal-options-and-tax-implications/)

Edited April 17, 2015 by Tiermelk

[GarethDavies]

I have been told by a few advisers in SA that If you reach age 55 and can access your retirement annuity and the value is less than the 70k you can take the money without financial immigration. As rules change and I am currently in Australia providing advice for mums and dads and self retirees, it's advisable to chat to a current SA adviser to help with the process. They can simply appoint themselves as your adviser and then do all the paperwork for you. they could also organise the funds to be transferred. These will be South African based fees and thus should be the most affordable option. Just like coffee cost less in SA, so to do the fees for service. For individuals with no South African links, i can always point you in the right direction.

[Tiermelk]

2. Leave the policy in place and make it paid up. There may be penalties payable but this will depend upon a few factors such as policy type, length of time to original maturity date and the individual insurer.

I have just done this, however I took a "payment holiday" for 12 months and this reduced the penalty I was liable for by a couple of % and cost me nothing.

Also if your RA is pre 2004 (or there about) you can have a look at the original policy document and see if it has anything in there about penalties. They will still try and charge you the penalties but may not be legally allowed to.

See here for some complaints the adjudicator has ruled on from older policies.

http://www.fanews.co.za/article/compliance-regulatory/2/pfa-pension-fund-adjudicator/1026/the-adjudicator-issued-another-23-rulings-involving-ra-funds-and-the-insurers-involved/1435