BOITUMELO NTSOKO: Welcome to the Money Savvy podcast. I’m Boitumelo Ntsoko. For many South Africans working overseas and maybe contemplating residing there completely, the large query is what to do with their retirement investments in South Africa. The current modification to laws governing retirement funds makes the scenario even trickier to navigate.
Joining us on this episode to share some steering on this situation is Elke Brink, who’s a wealth advisor at PSG Wealth. Welcome, Elke.
ELKE BRINK: Hi, Boitumelo. Thank you. It’s at all times good to be right here.
BOITUMELO NTSOKO: What must you take into account when weighing up whether or not to maintain your investments in South Africa or move them offshore?
ELKE BRINK: I feel that is changing into such a related subject for therefore many South Africans. More and extra people are transferring overseas, not solely quickly. Many individuals are emigrating for the time being.
But there’s additionally this state of affairs that lots of people are simply transferring for just a few years and perhaps holding open their choices of coming again. One of the principle questions I get so much is: “Do I cash out my retirement funds, specifically in South Africa, and take them abroad with me?”
From a tax perspective that’s, sadly, one of many choices that truly hurts you quite a bit, as a result of the tax implication may be very excessive when withdrawing and taking these funds overseas.
So in most instances, we’ve been advising buyers – and we’ll get into extra depth with this subject at the moment – to make sure you are optimising the most effective of each worlds, holding sure portfolios and particularly retirement merchandise in South Africa and guaranteeing they’re managed optimally, after which reasonably beginning new offshore investments on the worldwide aspect.
But [we don’t advise] taking over the tax implication and transferring it overseas. It’s not essential.
BOITUMELO NTSOKO: What advantages do the modifications in Regulation 28 now maintain for a portfolio remaining in SA?
ELKE BRINK: I feel this is without doubt one of the most fantastic modifications that got here into impact in our nation. One of the principle critique factors lots of buyers needed to Regulation 28 – this now applies to any retirement product earlier than retirement, ought to or not it’s a retirement annuity, ought to or not it’s a pension or a provident fund along with your firm, or ought to or not it’s a fund that you just’ve already preserved in your personal capability, so a pension or a provident preservation – you have been at all times restricted to 30% offshore publicity inside this product.
Recently the laws has opened up so that you’ve got the scope to move as much as 45% offshore.
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That means, particularly as a South African citizen perhaps residing overseas now, you may even have the most effective of each worlds. You can nonetheless have this product that’s tax-efficient, so that you don’t must take the tax hit of paying numerous tax on totally different sliding scales – which we are able to contact on now – however you don’t must tackle the tax implication however you do benefit from diversifying optimally and a minimum of structuring 45% of your portfolio offshore.
So I actually do see that as benefiting from each worlds. There remains to be lots of worth to be discovered in being invested in South Africa.
Firstly, you’ll have this profit now of getting elevated offshore publicity on the subject of fairness publicity. But on the subject of different asset lessons in your portfolio, South Africa is definitely very optimistic on the subject of money and bonds.
So after we have a look at the worldwide surroundings, there’s not a lot worth to be discovered in money and bonds at this stage the place you’re mainly incomes a zero return, whereas in South Africa you may a minimum of nonetheless count on the return [of around] 5% for money and, relying on precisely what bonds you’re investing in, between 5% or 7% or typically 8%.
There are positively lots of fixed-income asset funds which might be offering lots of alternative in South Africa – which you’re not getting outdoors this nation. So I wouldn’t be too unfavourable, even if you happen to’re not residing right here anymore, to speculate [here].
BOITUMELO NTSOKO: You touched on the tax implications of transferring your funds overseas. Could you perhaps give us extra data on that?
ELKE BRINK: I feel that’s the place most buyers damage themselves an excessive amount of, whereas I feel there’s lots of worth nonetheless to be discovered by simply guaranteeing your funding is managed optimally on this aspect. Basically what it simply is dependent upon [is] what section in your life you’re doing it at. Are you doing it earlier than the age of 55, or after the age of 55 the place primarily you may technically retire from a product on the age of 55?
Before 55 you’re employed on a withdrawal desk. This is now particularly pertaining to retirement merchandise. So accessible sorts of funds – I’ll clarify these now – are handled a bit in another way, however the main [question] we get is: “What do I do with my retirement funds?”
I feel if it’s somebody that’s transferring overseas, [and] the mindset is for most individuals to not come again they usually don’t like the thought of getting funds caught in the nation, I feel there must be a brand new mindset or a thoughts shift made round that. The tax implication is R25 000 is tax free, and after {that a} sliding scale applies, which may go up fairly excessive. This is provided that you’ve by no means made a earlier withdrawal. If you’ve ever presumably made a earlier withdrawal, you lose your tax-free profit. So that’s a once-in-a-lifetime profit you obtain.
Anything after the age of 55, relying on precisely what choice you select, you may presumably qualify or R500 000 tax free. So the tax-free element is healthier. It’s at all times vital to keep in mind that, as soon as once more, if you happen to’ve ever made a earlier withdrawal or if you happen to’ve ever been retrenched, this R500 000 will lower. So it’s fairly vital to just be sure you even have the R500 000 out there earlier than opting to withdraw it, as a result of it may very well be that you just’re taxed on it.
But there a sliding scale applies as soon as once more. So R500 000 will likely be tax free, and after {that a} sliding scale kicks in. So as soon as once more you may actually virtually pay as much as a 3rd or much more of your portfolio to tax, which isn’t actually wanted if you happen to can construction it in a distinct method.
BOITUMELO NTSOKO: Now, taking the tax implications in thoughts, what’s one of the simplest ways to move funds abroad? Is it withdrawing all the things or perhaps transferring to comparable offshore funds?
ELKE BRINK: Unfortunately laws doesn’t let you, for instance, take your retirement fund you had along with your firm right here – or your retirement annuity – and instantly switch it to an offshore pension or an offshore fund. That’s the place the unfavourable tax implication comes in. You must technically withdraw your funds after which move them offshore and reinvest them.
What you can do, nevertheless – and that’s the place I feel lots of worth lies, particularly after the age of 55 when you may retire out of your merchandise – is to start out incomes a month-to-month earnings. So maintain the funds invested in South Africa and optimise your offshore publicity, and then you definitely draw a month-to-month earnings; this may be paid into your offshore account.
Some of the funding platforms are already providing this service, the place you may instantly switch it into your offshore account, and a minimum of in this sense you might be minimising your tax implications and the unfavourable impact it may possibly have in your portfolio.
You may choose to earn your earnings in South Africa, relying on what your [particular] scenario is. A number of buyers nonetheless maintain some belongings in South Africa. I don’t know – for every particular person, if there’s perhaps nonetheless a property or perhaps nonetheless a life-cover product you’re paying [for] – all a lot of these commitments you would possibly nonetheless have on this aspect of the world you’ll anyway want a South African checking account.
So you would possibly as effectively earn an earnings right here. But the choices are open to either side. You may earn the earnings in your offshore account.
BOITUMELO NTSOKO: Is this the identical for many who are reaching retirement age and have retirement funds in South Africa?
ELKE BRINK: I’d at all times advise [from] a tax perspective and I feel [from] a returns perspective as effectively – if you happen to actually go and see what the alternatives are along with your funding portfolio on the subject of diversifying with asset lessons – [by] managing or holding a element of your portfolio in South Africa, you may optimise the offshore publicity.
So, even when it’s a rand-denominated funding; it doesn’t must be seen as only a South African funding. You are benefiting from the offshore publicity. Then you might be technically retired. You have this portfolio being managed on this aspect of the world, and you may choose to move the funds over to you both on an annual foundation or on a quarterly foundation or on a month-to-month foundation, must you wish to.
But I’d positively suggest getting recommendation on this as a result of I do consider too many buyers financially damage themselves by instantly making extra of an emotional resolution by way of emigrating or having only a unfavourable [view on] South Africa, financial uncertainty and political uncertainty, the place typically [those] don’t have anything to do with the funding market.
Your portfolio can nonetheless be incomes a unbelievable return, and there’s nice worth to be discovered throughout the JSE like I discussed now, with feeder funds that we are able to construct into the portfolio and profit from lots of offshore publicity.
After retirement, it’s vital to keep in mind that then [the] regulation additionally falls away in phrases of your offshore restrict. [By] transferring right into a residing annuity area at retirement, you may even enhance your offshore publicity greater than the 45% that you are able to do earlier than retirement. So if the offshore publicity is essential to you, you may nonetheless profit from the most effective of each worlds by rising the offshore publicity considerably, however not taking the tax hit of transferring your funds overseas.
BOITUMELO NTSOKO: Just then, with regards to offshore publicity, you talked about optimising it. How then would you go about this?
ELKE BRINK: We do that through the use of feeder funds. This is a kind of fund or kind of portfolio that’s instantly linked to offshore funds that will exist in the offshore area. The solely distinction is it’s nonetheless rand-nominated, so that you do get all the advantages of being diversified in this offshore area. It’s simply that you just do it inside your portfolio in South Africa. You’re not bodily cashing out the funds and transferring them overseas. But inside your portfolio you do have offshore publicity.
So it’s doable to construct it in. There it could actually depend upon what your holistic portfolio seems to be like and what your view is of poor publicity. You are allowed to make it 100% – if you need – of the retirement [investment] must you want to take action. But we simply do it in a rand-denominated method.
BOITUMELO NTSOKO: And if I’ve a residing annuity, can I earn an earnings into my offshore checking account instantly from SA?
ELKE BRINK: You can. Not all funding platforms are providing this service but – if I can consult with it as a service. But there are fairly just a few. I do know Allan Gray particularly is already doing it, and some of the funding platforms are transferring into that area.
But that’s positively an choice and I feel it’s fairly a handy choice for lots of people who don’t really feel like transferring between South Africa and their offshore account.
The funding is technically South Africa-based, however your earnings that you just earn you may choose to have paid instantly into your offshore account.
There are additionally choices usually round this [in terms of] income-earning. Do you favor to earn one annual earnings? I discover lots of buyers who move offshore want to do that, as a result of it’s simply a simple administrative idea. So annually you earn an annual earnings out of your residing annuity and it pays on to you. But you too can select to earn it month-to-month or quarterly, relying on what your money circulate scenario and your necessities appear like.
BOITUMELO NTSOKO: Elke, what if I’m not an SA resident or taxpayer? How would this then affect my monetary planning in South Africa?
ELKE BRINK: I feel that’s fairly an vital subject, and lots of buyers have to revisit their portfolios, particularly earlier than retirement – [as to] merchandise they most likely have had in place right here – to see what they’re benefiting from and what not.
If you’re technically not a taxpayer right here anymore, for instance, I’d revisit what function a retirement annuity performs in [your] life, since you’re not going to have the ability to declare again your contributions from Sars if you happen to’re probably not incomes any earnings right here anymore.
So revisit the aim of each product in your portfolio. What function did [each] play earlier than you left, and what function is [each] taking part in now? Once once more, I’m not essentially saying it’s good to money out the funding, however your contributions going ahead and your savings going ahead might perhaps be allotted in another way.
We may help with beginning a brand new funding portfolio instantly in the offshore area, in this manner actually optimising either side of the world for you, [thus] guaranteeing your South African portfolio remains to be being managed in an optimum method. But [it is] beginning off your new portfolio instantly offshore that technically has nothing to do with South Africa; you may make investments your new-earned foreign money in a very totally different area in phrases of sectors you may entry, the kind of equities you may entry, totally different fund managers. You can begin off your new portfolio on that aspect.
BOITUMELO NTSOKO: If I’m in my 20s or 30s and I’ve simply obtained a job abroad, and I’m uncertain about whether or not I’ll keep there or move again to SA, how then ought to I’m going about my retirement planning? Should I open a retirement fund abroad and in SA as effectively?
ELKE BRINK: Should you move offshore – and I feel that is one choice I actually wish to give, particularly to youthful individuals – I feel if you happen to determine to go and work overseas for just a few years, or even perhaps with a mindset of going completely, attempt to maintain all of your choices on the desk first.
I’ve discovered that lots of South Africans wish to come again at some point, I feel simply out of a life-style perspective; it’s not [necessary] to tackle any unfavourable funding choices simply so that you can come again perhaps after just a few years. So only for your self and your personal profit maintain the choices open.
For a younger investor, I’d suggest – relying on precisely the place you’re going to work – for instance, in the United States they do have the same idea to [that we have] on the subject of retirement funds. It known as a 401(ok), you robotically get this profit at work and you might be beginning to contribute to a retirement fund and also you get tax advantages for it. So in many instances, there’s an opportunity that you should have a brand new retirement fund in the nation you’re employed in.
What I’ll suggest, if you happen to’re not particularly incomes a tax profit from being in South Africa anymore, is to pause your contributions right here and reasonably optimise the offshore area while you’re there. You’re firstly incomes one other foreign money so that you don’t must convert again to rand, and you’ve got lots of alternative in the direct offshore area that you just don’t have in South Africa.
So, when you’re there, begin build up a portfolio on that aspect. We can at all times convey it again once more, must you for some purpose, determine to return again to South Africa and also you need your funds right here. You don’t have to convey it again, however you may.
Keep the South African portfolio invested and effectively managed on this aspect as effectively. This method you may optimise all of the returns, each regionally in South Africa and overseas, wherever you might be working, however you too can optimise the tax choices you’re taking and never decide that may eternally affect your retirement final result by taking a tax hit that you just don’t must take.
BOITUMELO NTSOKO: Then is it only a bit simpler if you’re transferring your funds from abroad to South Africa, if you come again?
ELKE BRINK: It’s not a troublesome course of in any respect. I wouldn’t say it’s an issue in any respect. There are various kinds of funding automobiles we are able to advise in the offshore area, they usually have various kinds of tax advantages, relying on if you happen to, for instance, solely select an accessible kind of funding or we use one thing like an endowment construction. But usually with a lot of the offshore automobiles we’d use, you may entry [them] once more in any checking account in the world, in any foreign money. So it’s straightforward to move round in the world once more, if I can [put it like] that.
BOITUMELO NTSOKO: Thank you a lot, Elke. That was Elke Brink, who’s a wealth advisor at PSG Wealth.