STOP PRESS: Retirement Annuities: Withdrawals on Emigration

[Almost there]

Well, I am glad you have let us know coz now we are all talking about it to brokers etc and so hopefully they will 'find out' sooner now with all the hype about it from their clients

[Trisha Rich]

Thanks JDJoburg! I really appreciate it...

[Karen-in-Brisbane]

Thanks. I heard formal immigration is a real nightmare and most people just leave!!! What is your advice???

[Cindylou]

Having spent hours searching for further information I've managed to find a couple of articles pertaining to these changes:

This one from the Business Day (dated 04/08 so not sure why I couldn't find it earlier) provides a pretty clear explanation as to how the act works and also why you may not get anything from your insurance company immediately!

Here's one from Personal Finance - a brief mention towards the bottom of the page

A transcript from a "you and your money" Summit TV show can be read here which covers this about three quarters of the way through.

And one from FIA Express

Lastly you can go to the SARS website and click on Taxation Laws Amendment Act No3 of 2008 (under Legal and Policy > Amendment Acts) if you want to read the official version from the horse's mouth!

Cheers

C'Lou

[JDJoburg]

Thanks C'Lou - good to see they've finally published the amendment act on the SARS website (At least there's now proof that I'm not talking nonsense!)

Unfortunately we're still no closer to answers with regards to implementation dates, procedures etc, but it shouldn't take much longer.

Cheers

Danie

[Donne']

Thanks for this info .

[SimonB]

Thanks for this - I raised the question with my financial advisor but he's away until Monday, so I can get him to hunt this down for me. What about one's normal pensions after handing on our resignations... hopefully soon...

[Johan du Toit]

It would be much appreciated if someone could explain to me what this topic is about. I am planning to emigrate to Aus in 3-8 months. I did not know that there will be issues with getting my money out. I thought that you just get your pension paid out when you resign and you can do with it what you want. I know it gets taxed. Is this topic about RAs or pension funds? If I am correct in my thinking, do you still get taxed if you pay all the funds to your new employer's pension fund? I have absolutely no idea how I will ever be able to do this without my pension fund money. Only have debt. Nothing else. Surely I am not alone?

[Almost there]

NO - you are not alone hence why the interest in this topic

Question (probably been asked & answered before & perhaps should go into new 'pinned' posting?)

- how does one officially immigrate then? Can one do it from Aus?

[JDJoburg]

It would be much appreciated if someone could explain to me what this topic is about. I am planning to emigrate to Aus in 3-8 months. I did not know that there will be issues with getting my money out. I thought that you just get your pension paid out when you resign and you can do with it what you want. I know it gets taxed. Is this topic about RAs or pension funds? If I am correct in my thinking, do you still get taxed if you pay all the funds to your new employer's pension fund? I have absolutely no idea how I will ever be able to do this without my pension fund money. Only have debt. Nothing else. Surely I am not alone?

The topic's about Retirement Annuities, Werner. Provident funds and Pension Funds have always allowed you to withdraw upon resignation (nevermind emigration) but with RA's you've never been able to access the funds prior to age 55 - until now. Read the whole thread and you'll know all you need to know.

Cheers

Danie

Edited September 26, 2008 by JDJoburg

[SimonB]

I had a chat to my financial adviser yesterday and he confirmed that the legislation regarding withdrawal of RA's has come into effect.

Essentially you are able to withdraw your RA's and pensions prior to retirement age on the basis that one is emigrating. These withdrawals will be taxed at your average rate.

Good news!!

[JDJoburg]

These withdrawals will be taxed at your average rate.

Good news!!

Also see my post here: http://www.saaustralia.org/index.php?showtopic=17993 - you might be better off waiting until next year before withdrawing your RA money (or any retirement fund money for that matter), depending on your average tax rate and the amount that you'd be withdrawing.

Without a doubt, if the proposals described in my other posting come through, people who are high earners but who are still relatively young (and who consequently have a withdrawal benefit that does not run into millions) will benefit from the proposals: how about the first R600 000 taxed at 18% rather than your current average tax rate? Read the thread and see if you might benefit from it; if not, you should try to make your withdrawal sooner rather than later.

Cheers

Danie

[Marius & Euneze]

Baie dankie vir die inligting, Danie.

[Giets]

Also see my post here: http://www.saaustralia.org/index.php?showtopic=17993 - you might be better off waiting until next year before withdrawing your RA money (or any retirement fund money for that matter), depending on your average tax rate and the amount that you'd be withdrawing.

Without a doubt, if the proposals described in my other posting come through, people who are high earners but who are still relatively young (and who consequently have a withdrawal benefit that does not run into millions) will benefit from the proposals: how about the first R600 000 taxed at 18% rather than your current average tax rate? Read the thread and see if you might benefit from it; if not, you should try to make your withdrawal sooner rather than later.

Cheers

Danie

Danie,

I am about to withdraw my pension & retirement fund (+- R1.0Mil). I already resigned, and am working my last day on 24th of Oct whereafter we will depart for Brisbane on a 457visa on the 4th of November. I am 35 and on a 40% tax rate, thus will only get R600,000 out if I am correct. Are there ways of increasing the amount paid out to me? At this stage my first priority is to cash out ASAP because I need cash to equalise 4 bonds to match rental incomes, preferably within the next month or 3.

Any assistance would be greatly appreciated.

Giets,

[Giets]

Danie,

I went to the link you provided. Would this new law be applicabe to pension & provident funds as well?

Regards,

Giets

[JDJoburg]

Danie,

I went to the link you provided. Would this new law be applicabe to pension & provident funds as well?

Regards,

Giets

The proposed changes that I referred to is in respect of ALL types of retirement fund.

At the moment, you will pay tax on your withdrawal at your average rate of tax, not your marginal rate, so you won't pay 40%. Your average rate is probably closer to 30%. Average rate = total tax paid as a percentage of total pre-tax income. You only pay 40% on taxable income in excess of R490 000.

Here's our current tax rates - calculate your total tax payable and then take this amount as a pecentage of your total income to get your average rate. For the purposes of the retirement withdrawal, you have to use the highest of your average rate in the year of withdrawal OR the previous year. (b.t.w, remember we're talking about a withdrawal and not about retirement from the fund)

0 - 122 000 18% of each R1

122 001 - 195 000 21 960 + 25% of the amount above 122 000

195 001 - 270 000 40 210 + 30% of the amount above 195 000

270 001 - 380 000 62 710 + 35% of the amount above 270 000

380 001 - 490 000 101 210 + 38% of the amount above 380 000

490 001 and above 143 010 + 40% of the amount above 490 000

[Giets]

What is the difference in withdrawel and retirment from the fund? As I understand I either need to transfer my pension & provident fund to another fund or withdraw the cash?

Regards,

Giets

[JDJoburg]

What is the difference in withdrawel and retirment from the fund? As I understand I either need to transfer my pension & provident fund to another fund or withdraw the cash?

Regards,

Giets

Retirement: you have reached retirement age (anywhere from 55 to 70, depending on the rules of the fund) and you can receive your retirement income or lumpsum benefits in terms of the rules of the fund. This means you are a member of the relevant retirement fund at your retirement age.

Withdrawal: you wish to withdraw your fund balance in cash prior to reaching retirement age, i.e. before you've become entitled to a retirement income / lumpsum as described above. For pension and provident funds, you will have to resign from your employer in order to do this. With retirement annuities (RA's) you'd have to be emigrating in order to withdraw the funds.

You can also, upon resignation from your employer, transfer the fund balance to an independent preservation fund, where the money can remain invested until you either make a withdrawal or reach retirement age. The preservation fund basically mimics the pension or provident fund from where the funds were transferred. No tax is payable on the transfer and a withdrawal or retirement from the fund at a later stage will essentially be the same as withdrawing or retiring from the original fund.

You should preferably seek advice from a Certified Financial Planner (CFP) before taking action in this regard - there are various tax and investment issues to be considered.

Cheers

Edited October 21, 2008 by JDJoburg

[celeste]

A major factor to consider with the preservation fund of course is that you have to pay COMMISSION which is usually a percentage of the sum you are transferring. Lousy I originally thought this might have been a good idea since the money could still grow while we wait but then the broker popped the fact that there is commission and of course that just poured cold water on the idea.

As I have a bond I decided to place my small pension withdrawal into the access bond until we leave.

Also, I'm not a financial advisor and the above is just my personal two cents worth and not professional advice by any means!!

Edited October 21, 2008 by celeste

[JDJoburg]

A major factor to consider with the preservation fund of course is that you have to pay COMMISSION which is usually a percentage of the sum you are transferring. Lousy I originally thought this might have been a good idea since the money could still grow while we wait but then the broker popped the fact that there is commission and of course that just poured cold water on the idea.

As I have a bond I decided to place my small pension withdrawal into the access bond until we leave.

Also, I'm not a financial advisor and the above is just my personal two cents worth and not professional advice by any means!!

No, you don't necessarily have to pay commission. If you feel confident enough in your own abilities, you can deal directly with companies such as Allan Gray.

For some people, there might be a huge tax advantage to delaying a withdrawal, and then a preservation fund could be ideal. If you only have a tiny amount, then don't bother. But when you're talking about hundreds of thousands or a couple of million, rather pay a professional financial planner a consultation fee and get proper advice - you can cost yourself a fortune if you don't know what you're doing. Not all financial advisers are snake-oil salesmen, there are highly-qualified people out there who charge by the hour, you just need to know where to look!

[RichardH]

As I have a bond I decided to place my small pension withdrawal into the access bond until we leave.

Also, I'm not a financial advisor and the above is just my personal two cents worth and not professional advice by any means!!

Hi Celeste

The very best thing you can do is put your money into your access bond. Instead of earning interest you are saving interest and of course there are no tax implications at all. Saving your present rate of interest you pay on the bond and with no commission to boot.

[JDJoburg]

Hi Celeste

The very best thing you can do is put your money into your access bond. Instead of earning interest you are saving interest and of course there are no tax implications at all. Saving your present rate of interest you pay on the bond and with no commission to boot.

Not necessarily Richard. Let's say you were resigning from your employer. Your provident fund is worth R600 000. You take the money as a withdrawal benefit and pay tax at your average rate of 30%. That's R180 000 worth of tax. You pay the remaining R 420 000 into your bond where you earn an effective rate of, let's say 13% (your homeloan rate is 13%). You leave for Australia in June of 2009 and withdraw your funds from your bond. You would've "earned" interest of app R45500.

However, I would've told you NOT to take the money now, and rather to transfer it, free of commission and tax, to a preservation fund with someone like Allan Gray, where the money is invested in their Money Market fund (which is effectively risk-free), and earning interest at a steady 12% p.a.

When you leave in June, you would've earned interest of app R86 400 (some of it would be taxable, but the effect thereof does not warrant discussion for purposes of this example). You then take the money as a withdrawal from the preservation fund, and you pay tax at 18%, in terms of the new withdrawal tax rates that are proposed for the 2010 tax year.

First option: R600 000 minus R180 000 = R420 000 plus interest of R45500: You take R465 500 to Australia.

Second option: R600 000 plus interest of R86400 = R686400 minus tax of R123552 (18%) = R562848.

The difference is just about R100 000. That pays for your container and the plane tickets for your entire family.

In this case, the difference comes simply from the fact that tax rates are changing soon, but illustrates the point that you should be careful to just follow conventional wisdom when you're resigning from your employer. You could've paid a good adviser a consultation fee of, let's say R800, for an hour's consultation, and saved yourself R100 000 in the process. I could give you other examples where a bit of planning can save you a packet, but the point is simply that you should proceed with caution when retirement fund money is involved. The trick is to know where to get good advice from.

Cheers

[Ausraven]

I have been following this thread for a while as I wish to cash-in our RA's.

Has anyone in Oz started the withdrawl process or managed to get an answer from their insurance company?

Please let us know :unsure:

[thehulls]

Hi there,

I have been through the entire thread and at the expense of sounding blonde (which I am), what is "formal emigration"? My husband and I are leaving on a regional sponsored 119 visa which is a PR, and as we don't intend coming back, would this mean we are in a position to cash out our PA's?

Thanks,

Liesl

[Eva]

Hi there,

I have been through the entire thread and at the expense of sounding blonde (which I am), what is "formal emigration"? My husband and I are leaving on a regional sponsored 119 visa which is a PR, and as we don't intend coming back, would this mean we are in a position to cash out our PA's?

Thanks,

Liesl

Formally emigrating apparently means completing form MP336 and submitting it to the SARB.

Most people just leave and don't come back.... :ilikeit:

Anyone with more info?