Pension fund transfer

[Andawaywego]

We are probably moving to Aus in FEbruary 2007. I have a pension fund that has followed me from emplyer to emplyer for the last 12 years. I would want to transfer these funds to the super in Australia and contribute to the same fund once there. Would I pay tax in SA on this if it is transfered to a preservation fund and then to the super?

Tanks for the assistance.

Cheers!!

[Jannie]

Hi,

You will have to pay tax when you move your funds from your current South African Pension Fund to an Australian Super Fund. Pension fund transfers are only tax free in South Africa if you transfer from on registered pension fund to another or any other recognised South African retirement provision fund such as RA, etc.

Hope it answers your question. Shout if there is more.

Regards,

Jannie

[Andawaywego]

Jannie.

Thanks for the info. It is probably not what I wanted to hear. I could transfer the funds to a preservation fund and keep it there tax free until I have decided to movi it to Aus? Do you typically earn the same growth in these funds as a pension fund or more likely interest you would expect in a Bank account?

The tax rate applied would be the marginal rate I am taxed at now?

Thanks again for the advice!!

Cheers

Morne

Edited October 16, 2007 by Andawaywego

[Guest Vermeulens]

I suggest that you wait until your tax return in SA shows no income. Because the formula for calculating the tax on the pension fund relies on the current level of income and the average of the previous assessments.

The lower the income the less percentage you pay. If the pension fund income is added on top of your current income, you'll pay more.

Do I make sense?

[JanCPT]

Actually the advice to keep it in a preservation fund for the first couple of years, while you are in Aus, makes the best sense.

Any taxable portion of the payment is taxed at an average rate - higher of current & prior years rate of tax calculated on your personal assesment

If you have not recieved any income in SA for 2 years, the average rate of taxation applied in the 2nd year will be 0% i.e. no tax payable

Just be sure that you remain a taxpayer in SA for the 2 yrs, although you don't have to earn anything in SA during that time

Also check the commisions payable on transfer to the Preservation fund - they might be higher than the tax!!

Cheers

Jan

Edited October 16, 2007 by JanCpt

[JJV]

Actually the advice to keep it in a preservation fund for the first couple of years, while you are in Aus, makes the best sense.

Any taxable portion of the payment is taxed at an average rate - higher of current & prior years rate of tax calculated on your personal assesment

If you have not recieved any income in SA for 2 years, the average rate of taxation applied in the 2nd year will be 0% i.e. no tax payable

Hallo Jan

Springbok's post in this regard (see the last paragraph) suggested that this is about to change on 1 Oct 2007.

Could you or Springbok shed some light on it?

Update : I found the following post, courtesy of Pixi, that answers the question that I posed.

Edited October 17, 2007 by JJV

[JanCPT]

Hi JJV

Springbok is actually quite right, I am still on the old rate, which did change on 1 October

All models still include a tax free portion and and average type. This is also an internationally applied type of model - which is also logical, because they are taxing people's retirement money (this would therefore still allow for a large amount to be taken out tax free each year, or at a low rate of tax)

If anyhing does change, the model I suggested can be adapted to suite the situation.

Depending on the size of the lump sum payment, the pres fund or living annuity can be taken over a number of years, with the amount taken each year calculated strategicially on the tax law which is effective at that date.

It might need a bit of manouvering, but you can probably get it all out tax free - depending on the size of the lump sum & tax law applicable, it might just take a while longer. The pres fund or ret annuity will still provide growth on the money left over.

Cheers

Jan

Edited October 18, 2007 by JanCpt

[Elmine]

Hello All,

My pension was invested in a preservation fund for the initial reason as mentioned above, i.e. we leave the money in the fund in SA, go work in Oz and after two years withdraw it all since the tax rate will be zero averaged out over the two years... Very nice plan, however, I was told by two different financial advisors about one month ago that this rule only applies when you actually retire (e.g. age 55) and withdraw the money. I does not apply when you withdraw funcs earlier! So now, the plan is only to wait for the new tax year in 2008 and then withdraw all the money in order to pay less tax since the only income (no salary in SA) for the year will be the money from the fund.

If anyone disagrees and have different info, I would really want to hear from you!

Regards

Elmine

[Pixi]

We should be careful of confusing two different things. Andawego did not give his age and that makes the difference. If we assume he is under 55 , it will be seen as a straight resignation - and after 2 years you can get your money at the reduced tax rate (18%) - Allthough it is possible for your effective rate to be 0% , they use 18%. (As 18% is our lowest rate of tax, its only the rebates which causes us to go in under 18% effectively)

And then the other option where the changes did take place 1 October is for people over 55 - seen as taking their lumpsum on retirement. And they are the guys getting the 0% up to a point.

This whole thing stays difficult - on the one hand it is the tax, on the other it is the exchange rate, and then still the rate of return on your money. But I'll also take the option of 2 years - and then you decide again if you take your money or leave it.. And depends on when you resign, it can be as short as 13 months. If you resign 28 Feb 2008, on 1 March 2009 you will qualify for the reduced rate as you will be in 2010 tax year.

Edited October 17, 2007 by Pixi

[JanCPT]

Pixi is actually quite right

It's dangerous taking generic advice and applying it to your personal finances - it was probably not the best for me to voice this kind of general opinion.

Best is to speak to a qualified advisor on your specific situation & try & work out the best option, based your own needs & expectations.

The expectations on exchange rate, cost of transferring to another fund, expected growth in such other fund, alternate investment oppurtunities, the amount of the lumpsum, the timing of your leaving, other income that you recieve (in SA & Aus), Ausie tax laws and your own personal financial needs, are only a few of the factors which have to be considered.

It's been said so many times, that knowing half of something is probably more dangerous than knowing nothing at all - act on advice from people who are informed on all of your affairs and also have the qualification & experience to give financial advice

Cheers

jan

Edited October 17, 2007 by JanCpt

[noone]

A few spanners for the works coming,

There was tax changes to pension and provident funds. The first R300 000 would be tax free, second R300 000 taxed at 18% and anything above that at (I cant remeber the figure and wish I had to for myself). This can only be taken once in your lifetime and I am not sure if it is only at 55 or not but thought I would highlight this and see.

Another thing that is a worry is that there is a proposal to change the rules for retirement funds and withdrawal benefits which will not allow any funds to be withdrawn unless you are retiring.

This is a fantastic thing if you are planning on retiring one day in SA but I for one prefer to have my nest egg in the currency I will retire on.

I am not a financial advisor and the above comments are there purely as to what I have read in various locations and discussed with others so please check it out with your financial advisor before doing anything rash based on them.

[JanCPT]

Could be quite nasty, if they do make those changes to the Pension Funds Act, because it will effectively mean that you can't take anything out when you emmigrate???

Careful with the tax free, that's only if you are retireing - over 55 etc. on resignation it's only R1 500 / 1 800?

Also, the changes to the income tax act were effected in the Feb budget speech (although only effective 1 Oct) & I wouldn't understand why they would accomodate resignations in the change of legislation in the tax act, if they intend to disallow resignations in the Pension Funds Act

Stranger things have happened though .....

Cheers

Edited October 18, 2007 by JanCpt

[moegeploeg]

Interesting reading so far... My only worry is the exchange rate. About a year ago it was R4.80, now it is over R6.10.... My gut says take it all while it is worth something. It will probably get worse over the next 2 years, not better. My Z$0.02 worth

ps. sorry, not trying to be negative, but legislation can change stopping you to take money out altogether... then what? If 10 000 people leave the country each with an average of R1M the government will soon realize that R10B is gone, never mind what the nett effect is on the economy.

[Andawaywego]

Thanks everyone, very interesting reading. I should probably see a financial advisor. Very difficult finding one with an objective view though. All trying to make a quick buck seeing you'll be leaving the country!!

Pixi, I should have mentioned I am not pensionable age yet. We would probably have to weigh the value deprescation of the rand versus tax paid? Will the rand depreciate 18% in the next 2 years?(R7.30:1AUD). If so there is really no benefit in waiting 2 years to get 18% lower taxrate? One wish they would realise they should try and keep the owners of these funds in the country and not just the money!!!!!

Thanks for the info

Cheers

Morne