STOP PRESS: Retirement Annuities: Withdrawals on Emigration

[RichardH]

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

Hi JD.

Now that is why I am an engineer and not a financial consultant.

Just not sure how you get it out of the preservation fund without tax, anyway will chat about that in a PM?

My wife faces this exact dilemma a few months down the track.

Will PM you nearer the time for some advice if that is OK?

Will pay gladly for good honest advice.

Your info is top notch, have seen it in other posts.

Regards

Richard

[JDJoburg]

Hi JD.

Now that is why I am an engineer and not a financial consultant.

Just not sure how you get it out of the preservation fund without tax, anyway will chat about that in a PM?

My wife faces this exact dilemma a few months down the track.

Will PM you nearer the time for some advice if that is OK?

Will pay gladly for good honest advice.

Your info is top notch, have seen it in other posts.

Regards

Richard

I'll bet you know more about finance than I do about engineering, mate! But thanks for the compliment.

You're welcome to PM me, I'll help where I can.

By the way, withdrawing or retiring from a preservation fund is exactly the same as withdrawing or retiring from the pension / provident fund where the money was transferred from, from a taxation perspective. In my example, tax is deducted from the preservation fund withdrawal but at only 18% because of new tax rates in the year of withdrawal.

Edited November 14, 2008 by JDJoburg

[celeste]

Hi JD

The broker I spoke to said there would definitely be a commission to transfer my pension into a preservation fund? How do you get around to having no commission payable? When I heard about the commission I just withdraw and put it into my bond - glad now that I did since the markets have taken the dive.

[GTrotter]

You can go directly to Allan Gray no need to use a broker. they just have a minimum investment amount which you would be able to find on their website.

[JDJoburg]

Hi JD

The broker I spoke to said there would definitely be a commission to transfer my pension into a preservation fund? How do you get around to having no commission payable? When I heard about the commission I just withdraw and put it into my bond - glad now that I did since the markets have taken the dive.

Perhaps you should ask Allan Gray and not the broker! Go to www.allangray.co.za and get some info. If you're "parking" the money until you go, you wouldn't select a portfolio where there's a risk of capital losses, you would select the AG Money Market portfolio as the underlying fund, where you'd get approximately 12% p.a. without exposing yourself to risk.

If you've already withdrawn the funds though, you cannot transfer it to a preservation fund later. I hope you didn't have to pay a lot of tax - the benefits of using a preservation fund depends on your income level and on the size of the retirement fund proceeds, so it's not a fact that you would've benefitted in any event. Unless you're clued-up on these issues, it's always better to have a consultation with a reputable adviser first, but that's the difficult part!

[celeste]

Hi Guys

Thanks for the advice, I only came back to this thread now as I have not been on the forum much over the past couple of months - depressed due to the 14 month wait and the bonds for bonus points hold-up with our visa which has now thankfully been resolved. : )

[IslandStyle]

Wow, this thread contains some incredibly useful information. I'll have to read it from the start (again) to grasp a bit more. I basically opted to have two RAFs made paid up and sometimes wonder if that was the right choice. I didn't have them for too long (three and a half years only), so it's not like their values were running in the hundreds of thousands in any case.

Edited February 1, 2009 by IslandStyle

[bedlam]

Hi Everyone,

I spoke with my Broker and quoted the short sumary of the new legislation passed in July2008 and this is my Life Assurance company's reply:

Op die oog af lyk die opsomming van die klient korrek te wees - belangrik die klient kan net ten volle kommuteer as kan bewys dat wel emigreer - ons gebruik huidiglik die bewys van "blocked rands account" wat bewys die persoon emigreer. Saraf se reels is gewysig en ek heg hierby aan die bewys soos ontvang van die FSB - paar maande gelede was dit nog die probleem gewys om die uitbetaling te kry aangesien die reels nog nie gewysig was nie - ons het gewag vir goedkeuring van die FSB.

I have also attached a document that explains the rule changes to the Annuity policy.

Can someone please tell me what a "blocked rands account" is?

I also understand that the withdrawel amount will be taxed at my average rate, is this correct?

Should I not wait for a few years until my average rate has dropped and then withdraw from my RA's and Preservation fund?

This forum is great.

Thanks to all the contributors.

Saraf_wysiging.pdf

[JDJoburg]

Your "blocked rands" is simply the money in excess of the R4 million per household that the Reserve Bank will allow you to take out upon your emigration. If you "formally emigrate", via application to the Reserve Bank, you will complete a form stating all your assets and the amount that you wish to take with you. I assume you will then be issued with some sort of official documentation to confirm the SARB's approval, showing the amount you may take out as well as the excess amount credited to your "blocked rands account", which must be administered by an SARB-approved institution such as a bank. Your retirement fund withdrawal benefit forms part of the assets counted towards reaching the R4mil limit, so some of it may have to remain here, in your "blocked rands account", unless you apply to the SARB to take the excess out as well, which they will usually allow but subject to a 10% levy on the excess.

I'm glad to see that the RA funds are finally getting their rules amended!

As far as the "average rate" issue is concerned, please search the "money" section, where I've posted lots of information about the topic. Depending on the amount in question, as well as certain expected changes to the taxation of withdrawal / retirement benefits, you may be better off taking the money now. If you can, hang on for a couple of weeks - I'll be posting information with regards to this issue after Trevor Manuel's budget speech next week.

Cheers

JD

Hi Everyone,

I spoke with my Broker and quoted the short sumary of the new legislation passed in July2008 and this is my Life Assurance company's reply:

Op die oog af lyk die opsomming van die klient korrek te wees - belangrik die klient kan net ten volle kommuteer as kan bewys dat wel emigreer - ons gebruik huidiglik die bewys van "blocked rands account" wat bewys die persoon emigreer. Saraf se reels is gewysig en ek heg hierby aan die bewys soos ontvang van die FSB - paar maande gelede was dit nog die probleem gewys om die uitbetaling te kry aangesien die reels nog nie gewysig was nie - ons het gewag vir goedkeuring van die FSB.

I have also attached a document that explains the rule changes to the Annuity policy.

Can someone please tell me what a "blocked rands account" is?

I also understand that the withdrawel amount will be taxed at my average rate, is this correct?

Should I not wait for a few years until my average rate has dropped and then withdraw from my RA's and Preservation fund?

This forum is great.

Thanks to all the contributors.

[Andrea]

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!!

Silly question , but I have been in Oz for over 6 years , so what would my paid up RA withdrawal average tax rate be??

[JDJoburg]

Technically, your average rate for the past 2 years would be zero; however, SARS will not tax the amount at less than 18%.

Silly question , but I have been in Oz for over 6 years , so what would my paid up RA withdrawal average tax rate be??

[gappedit]

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

I contacted both Liberty & Sanlam (I have a paid-up RA with each)

Sanlam said they can't cash in the policy as it is worth more than R7000.

Liberty said they are wiating for SARS to "update their systems"

Remebered another reason why I left South africa - lack of customer service from the financial services sector

Sent Liberty's respnse to Sanlam and askled them why they were so far out of the loop that their competition had put one over them?

Sanlam then sent me back the forms to start cashing in the policy.

Sent Sanlam's forms to Liberty asking why they were so far behind thir competition.

Still waiting for an answer.

As for Sage Life (Momentum) - still can't get reistered on their website to send a query.

[JDJoburg]

I contacted both Liberty & Sanlam (I have a paid-up RA with each)

Sanlam said they can't cash in the policy as it is worth more than R7000.

Liberty said they are wiating for SARS to "update their systems"

Remebered another reason why I left South africa - lack of customer service from the financial services sector

Sent Liberty's respnse to Sanlam and askled them why they were so far out of the loop that their competition had put one over them?

Sanlam then sent me back the forms to start cashing in the policy.

Sent Sanlam's forms to Liberty asking why they were so far behind thir competition.

Still waiting for an answer.

As for Sage Life (Momentum) - still can't get reistered on their website to send a query.

Bad news - apparently SARS's systems cannot yet cope with pre-retirement RA withdrawals. They cannot issue tax directives yet, without which the life company cannot pay the money out to you, even if they want to.

At least most of the RA funds will now acknowledge that you can withdraw the money on emigration, so that's progress I suppose. However, it's anyone's guess how long it's going to take for SARS to wake up. We're getting there but it's a painfully slow process.

Good news or bad news: your withdrawal will not be taxed at "average rates" anymore, but according to a sliding scale - see this thread:

http://www.saaustralia.org/index.php?s=&am...st&p=195040

[JDJoburg]

Good news!

It seems that SARS is now finally able to issue tax directives for retirement annuity withdrawals on emigration.

Contact your fund administrator or your broker for further details.

Edited May 6, 2009 by JDJoburg

[Marius & Euneze]

Thank you JDJoburg.

[MelbourneGirl]

Thanks very much JDJoburg !! That's excellent news

[worth the wait]

Has anyone made any progress in getting the ball rolling to have their RA paid out? Our broker is still clueless!!

[gappedit]

Progess made - not really!

I submitted the forms to Sanlam and Liberty a few months ago.

Liberty are still saying "Please be advised that our processing department are unable to apply for tax directive at the moment for immigrating client's less than 55. We are awaiting confirmation from SARS as to how to do this. The deadline given to us by SARS is between June and July.. "

Sanlam said

"In order for us to pay the full proceeds for termination due to emigration to you, we require a tax directive from the South African Revenue Service (SARS). We requested the tax directive from SARS, but it was declined.

The South African Revenue Service requested that you complete an IT77 form, as available from the www.sars.gov.za website

We strongly recommend that you consult your nearest South African Revenue Service office. As soon as the South African Revenue Service?s records have been updated, please contact us so that we can request the tax directive (IRP3) again.

We can therefore not process your request for payment of your retirement annuity at this stage."

Anyone know why SARS need me to re-submit an IT77 form (Application for registration as a taxpayer or changing of registered particulars: Individual) I am already registered. I can only assume SARS need me to update some details but who knows?

Anyone know of a tax agent (I am willing to pay fees) either here in perth or in RSA who can assist/advise?

Sanlam broker is useless - refuses to assist.

Anyone know how I can send the form i.e. fax/snail mail/email and how I get confirmation it was received?

Makes me so glad I live in Oz - got my tax refund with 10 days using etax!

[worth the wait]

Progess made - not really!

I submitted the forms to Sanlam and Liberty a few months ago.

Liberty are still saying "Please be advised that our processing department are unable to apply for tax directive at the moment for immigrating client's less than 55. We are awaiting confirmation from SARS as to how to do this. The deadline given to us by SARS is between June and July.. "

Sanlam said

"In order for us to pay the full proceeds for termination due to emigration to you, we require a tax directive from the South African Revenue Service (SARS). We requested the tax directive from SARS, but it was declined.

The South African Revenue Service requested that you complete an IT77 form, as available from the www.sars.gov.za website

We strongly recommend that you consult your nearest South African Revenue Service office. As soon as the South African Revenue Service?s records have been updated, please contact us so that we can request the tax directive (IRP3) again.

We can therefore not process your request for payment of your retirement annuity at this stage."

Anyone know why SARS need me to re-submit an IT77 form (Application for registration as a taxpayer or changing of registered particulars: Individual) I am already registered. I can only assume SARS need me to update some details but who knows?

Anyone know of a tax agent (I am willing to pay fees) either here in perth or in RSA who can assist/advise?

Sanlam broker is useless - refuses to assist.

Anyone know how I can send the form i.e. fax/snail mail/email and how I get confirmation it was received?

Makes me so glad I live in Oz - got my tax refund with 10 days using etax!

if you google Hugo van Zyl he offers this service

[xy16644]

I'd AVOID Hugo van Zyl. I wanted him to do my RA for me and when he hadn't responded to my emails after almost a month and I phoned him asking what was going on he was the RUDEST pig I have ever dealt with. He wanted to charge me R1750 PER HOUR to cash my RA in.

Good news is I am doing it myself now for free ;-)

[Dereko]

Hi All

I have been in contact with Liberty and SARS and the process can be done. This is the letter I received from Liberty's legal department (after been told that they are not able to do this due to SARS)

Thank you for contacting us.

Please see information below from our legal department for emigration.

Our requirements are a letter from the emigration department of bank that the client emigrated through, stating that they have received formal emigration approval from the Reserve Bank for the client's emigration and exchange control. In addition, the bank needs to provide us with details of the client's blocked SA account into which we can pay the commutation proceeds.

SARS also requires certain documentation (their second requirement is similar to ours) before they will issue the directive - these are below this e-mail.

However, SARS is currently undertaking a manual process for issuing these directives, whereby a Form C must be faxed to their Head Office for a manual directive to be issued from there (the regional offices are unable to process these correctly as yet). However, their turnaround time for processing these manual directives is 21 working days (ie at least 4 - 5 weeks). They have no contact details for enquiring on the status of the directives, so we are in the dark unless and until they send us the finalised directive back. They will only accept these manual directive applications from the fund and not directly from clients/agents.

They will not be implementing Online directives for these as they want to receive their requirements as well, so will be rolling the process out to the regional SARS offices in due course, possibly in August. I queried the timeline for this with them today, but have not as yet received a response.

________________________________________

SARS' requirements for proof of formal emigration

• A copy of the IB-IT21 (a) (application for a tax clearance certificate) together with the MP336 submitted at the SARS branch office should accompany the Form C application form. The IB-IT 21 (a) should bear the date stamp of the SARS Office where the tax clearance application was submitted

• A letter from the authorised dealer confirming the emigration should also be attached to the Form C application form

• If the member has already emigrated, the above as well as a copy of his certificate of residency should accompany the Form C application form. Note that this emigration must have been recognised for purposes of exchange control.

I have sent you the form C and retirement annuity option form as well (PM is you need this)

[Tex]

I'd AVOID Hugo van Zyl. I wanted him to do my RA for me and when he hadn't responded to my emails after almost a month and I phoned him asking what was going on he was the RUDEST pig I have ever dealt with. He wanted to charge me R1750 PER HOUR to cash my RA in.

Good news is I am doing it myself now for free ;-)

This is yet another reason why I love this forum!!! You can benefit from the experiences (good & bad) of others

Tex

[gappedit]

It took almost 6 months and several letters of complaints but Sanlam finally paid up.

Liberty still stalling

[Perth Oost Family]

It took almost 6 months and several letters of complaints but Sanlam finally paid up.

Liberty still stalling

I have been trying since March 2009 to get a tax clearance. This week I am informed that email applications are no longer accepted and I now have to send all the originals to SARS. Then they don't post the tax directive, you have to collect it from the branch where it is sunmitte.

I am not sure I can trast SARS with original documents.

What a challenge.

[Johan du Toit]

Any updates? Can you do this from Aus? My RA is with Liberty.