Leave RAs in SA or move to Aus?

[CharlesH]

I have quite a large amount of money in 2 RAs and 1 employer provident fund.  The one is an old generation RA meaning that there is an early termination penalty of about 10% if I financially emigrate.  In addition to that there is tax paid on cashing out RAs abn provident fund. Total costs will be about 28 % so quite a large amount.

 

Has anyone done any calculations on what the scenario would be if one left the RAs in SA and continue contrbuting until they mature at age 55 (in 10 years for me) vs financially emigrating, cashing out RAs and provident fund and then moving the net amount (after costs and tax) to Australia, taking into account future depreciation in the ZAR to AUD over the 10 years?  

Essentially the question is, would it be better to take the money out now and hope to see a better return with the money in AUD taking into account the depreciation of the ZAR to the AUD vs the RAs paying out in 10 years and then receiving an income in a potentially vastly depreciated Rand.

Looking at the past depreciation in the ZAR to AUD it seems logical to rather cash out and take the cost knock than earn a measly income in Rand in 10 year's time.

 

In 2007 the AUD per ZAR was about 0.16 wheras it is now 0.09. In 10 years 0.04? 

 

https://www.resbank.co.za/Research/Rates/Pages/SelectedHistoricalExchangeAndInterestRates.aspx

[SimpleSimon]

I have been out of South Africa a long time and have a reasonably objective view on this.

 

On the one hand South Africa has been on a downward spiral - corruption, incompetent government, affirmative action etc. 

On the other hand there is infrastructure in place which could turn the country around very quickly- roads, airports, ports, banking, education etc. 

 

On our trip there we discovered that housing was exceptionally cheap and it's tempting to buy some assets there as a high risk part of our portfolio although we realise the potential downsides.

 

My mom has been getting income from South Africa for many years and surviving. The interest rate in Australia is very low so your investments here don't grow much and passive income is low.

 

In 10 years time you could have a large capital sum in South Africa (in $AU) which is just when you need it on top of what you'd accumulated in Australia. Or you could have nothing.

 

I'm a gambling man, I wouldn't cash out at this stage.

[ottg]

Wasnt too sure if I should attempt to answer this but the best way is to do this over 2 posts.

This write-up I did way back in 2007 for myself. The following post will be with hindsight

 

In order to make a decision, you need to make certain assumptions. There is not a right or wrong decision as we don't have a crystal ball.

Many factors will influence such a decision. So let us attempt to name it.
a. It depends on how many years left before retirement i.e how many years to continue to grow your pension fund. Assume 10 years.
b. It depends on what the value is of your current RSA pension fund? Assume R1.5m
c. The tax payable on the sum is more likely closer to 35%
d. Exchange rate of 5.5:1 ZAR:AUD   (:-( good old days)
e. It depends on what income and lifestyle you require when you retire. Let's assume you have no dependents, keep the status quo and your current monthly income now is R20,000 (RSA Inflation adjusted 5% for 10 years = R32,577. Expendable income is 30%
To retire in 10 years with an income R32.5k pm requires an income investment like E170 (13%) long bond with all-in-price of 150 will cost R4.5m. This does not make provision for any further income growth. To ensure future growth you need to add an extra 20% i.e R5.4m

It also depends on what investment vehicle you intend to use to achieve future growth.
a. Annuity managed funds
b. Property
c. Self-managed superannuation funds
d. others

How to achieve those figures is another discussion. So let us focus on the question to move funds now or later to Aus!

To bring the pension to Aus after paying tax of $95k4 will leave $177k2 for investments. Aus Superannuation managed fund’s growth varies between 8%-12%, while self-managed superannuations will perform better. Let us assume 10%.
To make up for the taxed loss will take 4.5 years. But you also need to add an additional loss called opportunity cost of $145k9. Your total loss for 4.5 yrs is actually $95k4 + $145k9. If you didn’t have had to pay the tax, your investment of $177.2+$95.4 would have been $418k5 after 4.5 years.

NOTE: The biggest assumption is that you have done your Aus homework wrt to where to invest. This will better/worsen the figures and shorten/extend the time duration. With property, the time period can be less than one year. On the other hand, you don’t need your own money for investment property.
 

What you may need is more time to do your investment homework while you settle in Aus. Assume you need 2 years. If you keep your funds in RSA and do self-management you can achieve ALSI + 4% (avg 22%). Your capital will grow to R2.2m. This is enough to cover the tax payable should you want to move it. Note there would be reduced tax rates (assume 30%) because you did not earn a RSA income while you resident in Aus. This will then give you $280k to move across and after 2.5 yrs be worth $346k1, which is $74k better after 4.5 yrs should you decide NOT to move it now AND be doing self-management for 2 years.

Obviously, if you know the Aus stock market and know where to invest, the above outcome will be different!

[ottg]

Now let me reflect. I spent a considerable time on the ASX since the past 2-3 years. The AUS market is extremely volatile and what I have learned from the JSE market is not100% applicable here. However some concepts didn't change, you have to manage your own affairs and therefore need to understand the AUS market. You need to understand what makes the economy tick. For example, I would have never bought resources shares in RSA, here I have learned the hard way that it's important to make that selectively part of your portfolio. BUT then you have to check it very closely. Also, consider the overseas markets; USA, China, Brazilia and UK, for capital growth, however, the exchange rate also impacts a lot eg the QQQ on Nasdaq show continuous growth over the past 10 years but once the $AUS strengthen then the growth doesn't look all that impressive anymore.

 

You will pay tax irrespective if you in RSA or in AUS. Managing your funds self inside your AUS Super also has many tax benefits. My view is, and has been, that it is better to delay the transfer but use the time to learn the local market. Even do own your investments on a small scale as part of learning. Use investment tools to help you analysing and understanding the local market. Once you have confidence in your own financial decision-making bring the bulk across.

 

If you are only prepared to let someone else manage your funds then none of this applies. However, then I can refer you to some well-researched readings that may change your mind.

 

 

Edited September 15, 2017 by ottg
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[Riekie]

When we applied for our Visa, the exchange rate was 1:3

When we arrived in Australia, is was 1:5

When the laws changed to allow us to cash out our annuities it was 1:9

Today it is 1:11

 

It took only 13 years to go from from 1:3 to 1:11 -   At this rate, in another 10 years, you're looking at 1:17

 

The longer you wait, the less your large amount of money will be worth, no matter how you look at it.  Cut your losses and get your money out of there.   

 

[woodag]

I don't remember the exact rate now, but when we arrived in Australia, the rate was somewhere around 11:10. Yes, ZAR was worth slightly *more* than AUD.

My 2 cents worth, after spending decades trying to deal with SA companies remotely, is that if you can, take your money and run.

[Riekie]

On 9/19/2017 at 8:32 AM, woodag said:

 

My 2 cents worth, after spending decades trying to deal with SA companies remotely, is that if you can, take your money and run.

 Pretty much my reason #2 for getting everything I have out of there! 

After 13 years, the council still owes me my deposit!... I just wrote it off as someone's new fancy dress and a pair of shoes.