The announcement by Finance Minister Trevor Manuel in his Budget last week that emigrants may cash in their retirement savings before maturity applies only to retirement annuities (RAs).
Mientjie Botha, the director of legislative tax design (tax policy) at the National Treasury, says the measure does not include compulsory annuities (pensions) purchased with any tax-incentivised retirement savings, including RA funds.
Botha says the change "effectively allows a pre-retirement withdrawal from RAs where a person emigrates from South Africa".
If you are a member of an occupational fund, you are already permitted to cash in your retirement savings and include the amount in your emigration allowance.
Botha says the taxation structure that will apply to cashing in an RA will be the same as with any pre-retirement withdrawal: the first R1 800 is tax-free and the balance is taxed at your average rate of tax.
The National Treasury is working on simplifying the way in which retirement fund benefits withdrawn or paid out on death before retirement are taxed. The purpose of changing the structure is to avoid the complexities of calculating average rates of taxation.
The new structure, which is likely to be similar to the structure introduced in October last year for the taxation of lump sums at retirement, is expected to be included in the Revenue Laws Amendment Bill, which is normally tabled in Parliament in June.