We’re told to save – for a rainy day, emergencies, or retirement. It makes sense to leave your savings untouched for as long as possible. And yet, the rationale for keeping your nest egg untouched doesn’t always hold up in novel circumstances.
If you’re a South African expat or are planning on emigrating, moving your retirement savings abroad may just be the most logical choice.
5 Reasons to move your retirement savings offshore
The reasons for leaving retirement savings untouched are well documented and covered. Fin Select would never advise anyone to go against such sound advice without proper consultation and number-crunching.
And yet, as a financial services provider who caters primarily to the South African diaspora, it’s important to highlight reasons why early encashment may be the best solution. Note, however, that the points below are only applicable to those who have already emigrated or plan on moving abroad indefinitely.
Your personal circumstances will require one-on-one consultation with one of our accredited team members to determine what you could and should do. We cannot offer personal advice via articles, but hope to provide some insights nonetheless.
If any information on our site or blogs is unclear, please send your questions or queries to admin@finselect.co.nz. Initial consultations are free-of charge and without obligation. As an authorised FSP we provide South Africans with accurate legal advice and service, and don’t levy any fees without a service agreement with our clients. You are in trusted hands.
Rudi Stander, Head of Fin Select New Zealand
Let’s look at 5 reasons why it may be worthwhile to transfer your retirement money (or other financial assets) abroad.
1. Safer shores = more reliable returns
Most people resort to commutation (lump sum withdrawal) due to financial constraints and desperation. Desperate times, as they say.
Early withdrawal levies hefty fees and, should you encash the bulk of your savings, those leftover funds (if any) will generate lower returns. And yet – for those who are relocating abroad, losses can potentially be recovered quite easily by reinvesting those funds in more stable economies.
While you will take an initial knock, reinvesting your retirement money in a local pension scheme or other investment incentive in your new country could protect your investment from market fluctuations as well as sociopolitical/socioeconomic upsets.
This is the rationale for those who move to more developed nations or countries with less political instability.
2. The three-year lockdown rule
The SARB eliminated exchange control a few years ago. While this was technically meant to ease cross-border flows of money, it came with significant caveats for South African emigrants.
The new rules stipulate that South Africans need to retain their financial assets within SA for an uninterrupted period of three years before they can access these funds. In order to comply with this rule, saffas need to inform SARS of their non-resident tax status before leaving (or within 30 days of emigrating). This is known as tax emigration. They also need to prove their non-resident status by refraining from accessing their ‘tax benefits’ as South Africans abroad.
Before the new system, South Africans had some leeway. You could choose to complete the financial emigration process at any time – provided you satisfied the SARB’s rules.
The new regulations necessitate acting at the soonest if you wish to move abroad indefinitely. If you don’t manage the three-year post-emigration period diligently, you could see your savings locked down for an even longer period.
Retirement age rules: a warning!
Also remember that certain policies and funds require retirement at a certain age. While tax emigration is applied retrospectively after three years, those nearing 55 years of age need to keep these rules in mind.
Once retirement age has kicked in, it’s far harder to encash savings and move them abroad. It’s also not allowed for certain schemes. This means that you may need to settle for a lump sum withdrawal and reinvest the rest of your savings in a South African-based annuity or preservation fund.
3. SA’s 2-pot Pension
We covered South Africa’s new 2-pot pension system at length before (and will do so again).
This is of particular interest for those who have already emigrated (and immigrated). The pension reforms are aimed at helping South Africans struggling with debt to access a portion of their retirement funds while still saving for retirement.
Although this has merit for those living in SA, it could be quite taxing (literally) for those who no longer live in South Africa. A portion of retirement savings will henceforth be accessible per annum. The catch is that such withdrawals will not be considered part of your taxable income. As such, they can not only push you into higher tax brackets, but incur hefty tax levies.
South African expats tend to hold off encashment of their retirement savings due to withholding tax. With the new pension system, you could face far heftier taxes on your retirement money if you hold off.
4. Pension/investment incentive schemes
The three points above focus primarily on the downside of holding out, but there are ‘pull’ factors to consider as well.
Numerous countries offer pension or investment incentive schemes to immigrants with optimised returns for reinvesting their money abroad.
Such schemes focus on:
- Allowing tax relief and rebates for those who want to transfer their foreign savings to local retirement schemes
- Expediting immigration for those who invest foreign assets in their new country (see immigrant investor programmes under point 5)
- Offering optimised returns for individuals who commute their funds to locally-managed investments
Greece, for instance, offers a flat 7% tax rate to foreign nationals who move their tax residency to Greece. This rate applies to pensions, rental income and transferable investments and remains fixed for 15 years.
5. Immigrant investor programmes
This incentive is commonly known as ‘citizen by investment for residency’ or the ‘golden visa’. These are programmes that allow fast-tracking of citizenship through foreign capital investment.
While such schemes can be at the steep end, some countries offer these incentives at a relatively low investment cost.
Using your retirement money for the purpose of securing residency or citizenship makes sense for numerous reasons:
- The investment doesn’t need to be in a pension or retiremen scheme as with pension incentive schemes
- The investment can carry stable returns (such as investment in property)
- It can offer you swifter access to local tax and other fiscal incentives since your citizenship or residency will be fast-tracked
- Such investments can also expedite immersion into the local private or public sector and boost networking for entrepreneurs
Countries that offer citizenship/residency through investment
The visa/citizenship rules differ from country-to-country and depend on the value and nature of the investment. The basic requirements are being over the age of 18 with a clear criminal background and maintaining clear business and credit records.
Investment types include:
- Real estate
- Government bonds
- Establishing businesses or organisations for local employees
- Maintaining a consistent import/export enterprise
- Philanthropic investments
- Business incubation programmes
Countries that offer immigrant investor schemes
Below are some countries and their respective investment requirements for immediate citizenry or residency.
Some of the investment rules require that individuals stagger investments over a certain period, or that they refrain from disinvesting for a certain period.
Note: the golden visas below are non-exhaustive as there are other options available. This is just a snapshot.
New Zealand
- Time to residency: 8 – 9 months
- Time to citizenship: 5 years
- Investment types:
- New residential property or property development (not for investor’s personal use)
- Commercial property
- Direct investment in approved businesses (3x weighting)
- Approved managed private equity or venture capital funds (2x weighting)
- Listed equities and philanthropy (1x weighting investment requirement)
- Requirements and costs:
- 12 months to invest funds in New Zealand from date of visa approval
- Investor Category 1:
- R109 359 000 – R164 053 500
- Investment maintained for 3 years
- No age limit or language requirement
- Investor Category 2:
- R32 810 700 – R54 684 500
- Investment maintained for 4 years
- Entrepreneur Visa:
- Capital investment of R1 093 690
- 120 points or more
- Must have existing business or management experience
- Must present a clear business plan
- Other requirements:
- Investment funds must be named on visa application
- Evidence of the source of funds
- Category 1 & 2: 25% entry investment into assets other than bonds or philanthropy
- Initial investments of at least 50% of required amount will reduce total investment requirement for Category 1 & 2 by R5 465 450.
- Good health
- Good character
- Spend 117 days in New Zealand across 4 year residence period
- Investments can be made over 3 years and maintained for the full 4 year residence period
- If families are included, they must visit New Zealand within 12 months of visa being granted
- Family members aged 16+ must meet English language requirements
- Benefits:
- Funds already invested in New Zealand count towards the investment total
- Zero gift, estate, wealth or capital gains tax
Canada
- Time to residency: 12 – 37 months
- Time to citizenship: 3 years
- Requirements and costs:
- Business incubation:
- R0 investment
- Confirmatin by designated business incubator confirming acceptance of applicant into business incubator program
- Angel investment:
- Raise R1 000 000 from an angel investment group
- Venture capital fund:
- Raise R2 665 100 from a venture capital fund
- Quebec Investor Immigration program:
- 5-year interest-free investment of R13 325 500 guaranteed by Quebec Government
- R2 665 100 contribution to Investissement Québec
- 2 year minimum management experience acquired within 5 years preceding submission
- Net worth of at least R26 651 000
- Proficient in French (level 7)
- Qualification equivalent to secondary school diploma of Quebec
- Business incubation:
- Other requirements:
- Good health
- Good character
- English or French language proficiency
- Clear criminal record
- Business proposal submission approved by government business organisation
- Physical presence for 2 out of 5 years to maintain permanent residence status
- Applicants must hold at least 10% voting rights attached to all business shares outstanding at the time
- Applicants & designated entity must hold at least 50% jointly of total voting rights attached to all shares outstanding at the time
Portugal
- Time to residency: immediate (valid for 2 years)
- Time to citizenship: 5 years
- Requirements and cost:
- R9 969 350 transfer to a private equity or venture capiital fund
- Alternatively, R4 982 378 investment in
- Legal costs of approximately 10% of investment for the 1st year and R29 908 every two years after for renewals
- Government fees of R127 488 per applicant for the 1st year and R69 546 every two years thereafter
- Other requirements:
- Opening a Portuguese bank account
- Clean criminal record
- Full health insurance
- Renewal every two years provided thte applicant spends at leeast two weeks in the country every 2 years and maintains their investment.
- Annual passive income of R195 965 + R97 983 per adult and R65 322 per child
Turkey
- Time to residency: 3 – 5 months
- Time to citizenship: immediate on completion of residency application
- Investment types:
- Real estate
- Fixed capital contributions
- Turkish bank account (with minimum value)
- Government bonds
- Real estate investment fund share or venture capital investment
- Private pension
- Job creation
- Requirements and costs:
- Real estate:
- R7339 520 investment
- Requires registration at land registry directorate for property ownership title
- Renewable short-term residency permits automatically issued under Law No. 6458 on Foreigners and International Protection
- Fixed capital contributions:
- R9 174 400
- Turkish bank account deposit:
- R9 174 400
- non-withdrawal for a period of 3 years
- Government bonds:
- R9 174 400
- 3 year holding period
- Real estate investment fund share/venture capital investment:
- R9 174 400
- 3 year holding period
- Private pension system:
- R9 174 400 commitment
- 3 year holding period
- Job creation:
- minimum 50 jobs created
- attested to by Ministry of Family, Labour and Social Services
- Real estate:
- Other requirements:
- Residence permit application made on behalf of family after investment option is elected
- Bank account must be opened in Turkey by main applicant on application
- Successful applicants must visit Turkey to capture biometrics
Malta
- Time to residency: immediate on approval
- Time to citizenship: 12 – 36 months
- Investment types:
- Real estate purchase
- Real estate rental
- Economic contribution
- Requirements and costs:
- Real estate:
- R797 548 administrative fee
- R39 877 charitable donation
- Property rental:
- R1 156 445 economic investment
- R199 387 – R239 264 rent per year
- Property purchase:
- R 558 284 economic investment
- R5 981 610 – R6 978 545 property cost
- Economic contribution:
- Contributing at least R11 963 220 to the Maltese economy for a residence period of 36 months, or
- Contributing at least R14 954 025 to the Maltese economy for a residence period of 12 months
- Real estate:
United Kingdom
- Time to residency: immediate on approval
- Time to citizenship: indefinite leave to remain application after 2, 3 or 5 years
- Investment types:
- Investment requirements and costs:
- Innovator Visa:
- Establishing a business in the UK endorsed by an approved British body
- A minimum of R1 184 765 to set up the new business
- Indefinite leave to remain:
- 75% of investment funds in UK government bonds, share capital or loan capital in active UK companies within 3 months of investor start date
- 2 years:
- R236 953 000 in cash
- R473 906 000 in personal assets OR R236 953 000 in UK-regulated loans
- 3 years:
- R118 476 500 in cash
- R236 953 000 in personal assets OR R118 476 500 in UK-regulated loans
- 5 years:
- R23 695 300 in cash
- R47 390 600 in personal assets OR R23 695 300 in UK-regulated loans
- 2 years:
- Passing ‘Life in the UK’ test
- 75% of investment funds in UK government bonds, share capital or loan capital in active UK companies within 3 months of investor start date
- Innovator Visa:
- Other requirements:
- Must be a citizen outside the European Economic Area (EEA) and Switzerland
- Must meet English language requirements
- At least R22 392 in your bank for 90 consecutive days before application
- Proof of an academic qualification taught or researched in English and recognised by the UK NARIC as equivalent to UK bachelor’s, master’s or doctoral degree.
Other countries/territories with golden visas
Other nations that offer fast-tracking of citizenship by investment or entrepreneurship include:
- Greece
- Antigua and Barbuda
- USA
- The Netherlands
- Hungary
- Luxembourg
- Montenegro
- Colombia
- Latvia
- Thailand
- Switzerland
- Australia
- UAE
- Italy
- Singapore
- Cyprus
- Panama
Let Fin Select help you move your rands abroad
Whether you’re already settled abroad or plan on emigrating in the near future, Fin Select can assist with your cross-border finances.
What we can offer you:
- Free consultation to discuss your needs
- A roadmap and guidelines for execution of your specific financial requirements
- Preparing and populating all necessary documentation required
- Obtaining tax compliance PINs/certificates or AIT
- Facilitating applications and submissions with tax authorities and financial institutions
- Ensuring compliance with tax and financial regulations (both local and abroad)
- Negotiating the best tranactional and foreign exchange rates
- Facilitating account opening and transfers between relevant parties
- Assisting with import/export compliance and transactions
Let our qualified team of experts help you move your money to your new home.
Leave your details below and we’ll contact you!
Sources:
- Canadian Government
- Henley Global
- UK Government
- Home Affairs New Zealand
- Global Residence Index
- Immigration Advice Service UK
- IMMTELL
- Conde Nast Traveler
- Ministry of Social Development New Zealand
- World Bank
- International Monetary Fund
- BBC
- Oanda
- Malta Immigration
- Golden Visas
- Savory & Partners
- Sable International
- OECD
- Turkish Government