How South African expats are accessing retirement funds in 2025

Expats Among Millions of South Africans Tapping into Two Pot-Windfall

 John-Paul Fraser, Team Lead: Cross Border Taxation at Tax Consulting SA; and

          Shuanita de Wet, Retirement & Pension Fund Specialist at Tax Consulting SA.

Only two months into the new tax year, many South Africans have again dipped into their retirement fund Savings Pot, after also making a withdrawal in the previous six months.

Retirement fund administrators represented on the Retirement Matters Committee of the Actuarial Society of South Africa (ASSA) reported that around 75% of applications already received in March and April 2025 were repeat claims, ASSA said in a media release.

This follows after more than 2.69 million South Africans accessed a part of their retirement savings under the Two Pot Retirement System in the tax year ending February 2025. Experts say this is a clear indication that many are eager to lay their hands on extra cash, and as soon as they can.

According to the South African Revenue Service (Sars), a gross lump sum of R47 billion was paid to retirement fund members from their Savings Pot in the six months following the implementation of the Two Pot System on 1 September 2024. This yielded nearly R12 billion in tax revenue, which is almost double the R5 billion initially projected by the National Treasury.

Under the new system, pension fund members are allowed one withdrawal from the Savings Component in a tax year.

South African expatriates residing abroad are most certainly among those who withdrew money from their Savings Component, which was seeded with up to 10% of their pension fund credit as of 31 August 2024, capped at R30,000. This once-off transfer came from the funds accumulated in the vested pot up to that point.

Encashing on your policies after Ceasing Tax Residency

Before March 1, 2021, individuals could withdraw retirement interests immediately after formalising their emigration with both Sars and the South African Reserve Bank (SARB). This included Pension, Preservation, Provident Preservation, and Retirement Annuity Funds.

Since then, the 3-year lock-in rule has applied, requiring a non-resident taxpayer to maintain their non-resident status for an uninterrupted period of three years or longer before becoming eligible for early withdrawal of lump sum benefits from South Africa.

Savings Pot funds are exempt from the lock-in rule

The good news for expatriates who still have retirement funds in South Africa, is that the lock-in rule does not apply to the money in the Savings Pot. It is immediately accessible.

One can withdraw money from the Savings Pot of all your retirement products once a tax year. Since September 1, 2024, retirement contributions are split into two, with one-third of the contribution going to the Savings Pot and two-thirds to the Retirement Pot, which is preserved until retirement.

Expats who are considering using this money must keep in mind that it comes with tax implications, carries an administrator’s withdrawal fee, and is subject to regulations on cross-border transfers.

Withdrawals will be taxed

All withdrawals from the Savings Pot are taxed at the taxpayer’s marginal rate. This also applies to South Africans who have formally ceased tax residency: they may have severed tax ties with Sars to protect their worldwide income from being taxed in South Africa, but they remain liable for tax on South African-sourced income.

Sars said in the tax year ending February 2025, the most applications for Savings Pot withdrawals received were:

·        Almost 768,000 in the tax rate bracket of 0.01% to 18%;

·        642,544 in the rate bracket between 18.01% and 30%; and

·        640,335 in the bracket between 30.01% and 40%.

By the end of January 2025, Sars’ simulated WhatsApp calculator had been used 90,283 times since the implementation of the process. The Two-Pot retirement system calculator, part of the Sars Online Query System, assists pension fund members with an illustrative amount of what they can possibly expect as a payout. Sars emphasises that all relevant and accurate information must be provided to get a clear estimate of the payout. 

Transferring the funds abroad

Alexforbes said in a recent media article that since the start of the new tax year on 1 March 2025, it has already received over 33,000 savings pot withdrawal claims from members, highlighting that many South Africans are experiencing financial pressure. A previous survey done by Alexforbes showed that 80% of claimants used their Savings Pot withdrawals for debt repayment and essential living expenses. [1]

After ceasing tax residency, transferring funds abroad can be complex. For instance, your authorised dealer (bank) must verify the source of funds, and non-resident taxpayers need an Approval International Transfer (AIT) PIN from Sars to transfer any funds to their overseas bank account.

Other considerations when ceasing tax residency

It is also important to note that upon ceasing tax residency, you will be deemed to have disposed of your assets at market value on the day before departing from South Africa. This may trigger a Capital Gains Tax liability should a capital gain be realised. This is also known as an “exit tax”.

Items included in the exit tax are generally:

·        Foreign fixed property;

·        Global shares, unit trusts and similar investments;

·        Crypto assets and similar investments; and

·        In certain cases, trusts.

Items excluded are generally:

·        South African fixed property in your own name;

·        Retirement funds (such as pension, provident, retirement annuity);

·        Personal use assets such as motor vehicles and furniture; and

·        Cash.

Conclusion

Despite some challenges, such as application rejections and concerns over tax burdens, the system has provided a valuable option for many individuals seeking early access to a portion of their retirement savings. As the system continues to evolve, it will be crucial to monitor its impact on long-term retirement security and financial planning for South Africans.

Those who feel that they have missed out on their annual savings withdrawal last year should seek professional guidance on accessing their Savings Pot amounts to avoid any unwanted surprises from Sars. 

* Fraser is the team lead for cross-border taxation, and De Wet is the retirement and pension fund specialist at Tax Consulting SA.

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