TWO-POT RETIREMENT POLICY WITHDRAWALS for SA Expatriates
Planning for retirement withdrawals can be complex for South Africans abroad, especially when it comes to the uncertainty surrounding the new Two-Pot retirement system. Our expert team is here to simplify the process of Two-Pot retirement withdrawals, providing an end-to-end solution, ensuring you make the most of your hard-earned money. Whether you’re looking to understand the tax implications, optimize your withdrawal strategy, or simply need guidance on the best approach, we’re here to help every step of the way.
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EARLY WITHDRAWAL UNDER THE TWO-POT RETIREMENT SYSTEM
In a significant reform to South Africa’s retirement savings landscape, the Two-Pot retirement system was signed into law by President Ramaphosa on 1 June 2024, which took effect on 1 September 2024.
Before 1 March 2021, individuals who ceased their South African tax residency and formalised their emigration through the South African Reserve Bank (SARB) were permitted to immediately access and withdraw their retirement funds.
However, with the legislative amendments effective from 1 March 2021, this process changed. Under the new rules introduced by National Treasury and implemented by SARS (South African Revenue Service), individuals must now prove that they have ceased South African tax residency and must have remained non-resident for a consecutive period of at least three years before they can access their retirement annuity or preservation fund interests. This is commonly referred to as the “three-year lock-in rule” and is subject to lump sum tax upon withdrawal
The three-year lock-in rule does not mean that an individual should delay formalizing their non-residency status with SARS. On the contrary, postponing the cessation process in the hope of early access to retirement funds is a legally risky approach that should be avoided. Formal non-residency must be established first, and the three-year period then runs from that date of cessation as recognized by SARS.”
This is confirmed in SARS’s guidance on the Withdrawal of Retirement Funds by Non-Residents, which states:
A person will be regarded as having ceased to be a tax resident from the day such a person ceased to be ordinarily resident or failed to meet the physical presence test. Once a person has ceased to be a tax resident and that status has been confirmed by SARS, they may apply to withdraw from their retirement annuity after being a non-resident for at least three consecutive years.
Now, following the changes that have come into effect after the implementation of the new Two-Pot retirement system, South Africans living abroad have been presented with an alternative option.
Those who have formally ceased their tax residency status by using financial emigration or have been noted as non-residents for tax purposes in South Africa have the rare opportunity to withdraw their total retirement savings from South Africa without having to wait until the maturity date of the three-year lock-in rule.
To learn more about retirement interests, the 3-year lock-in-rule or exit tax consider reading our article on the topics.
Understanding South Africa’s Exit Tax and the Proposed Tax on Retirement Interests
Contact one of our expatriate tax experts today to assist you with your early withdrawals.
Two-Pot Retirement & Tax Residency Exit – FAQs
- In a significant reform to South Africa’s retirement savings landscape, the Two-Pot retirement system was signed into law by President Ramaphosa on 1 June 2024, which took effect on 1 September 2024.
- Prior to March 2021, individuals who ceased their tax residency and confirmed their emigration status with the South African Reserve Bank could withdraw their retirement interest in South Africa immediately. With effect from 1 March 2021, these retirement benefits are locked in for a minimum period of three years (lock-in rule), after which they could be fully withdrawn (subject to lump sum tax implications).
- The three-year lock-in–rule does not imply that an individual who wishes to withdraw their retirement interest should postpone their formalisation of non-residency until the three-year period has lapsed. This is a risky approach that should be avoided.
- Now, following the changes that have come into effect after the implementation of the new Two-Pot retirement system, South Africans living abroad have been presented with an alternative option.
- Those who have formally ceased their tax residency status by using financial emigration or have been noted as non-residents for tax purposes in South Africa, have the rare opportunity to withdraw their total retirement savings from without having to wait until the maturity date.
- This is referred to as the three-year lock-in rule. Where an expatriate has been registered with SARS as a non-tax resident continuously and for an uninterrupted period of three years, they will be eligible to make a full encashment withdrawal of their policy.
- Withdrawals are subject to tax at the hands of SARS upon withdrawal, this is irrespective of whether an expatriate has ceased their tax residency or not.
- Double taxation can be avoided by applying tax treaties between South Africa and your current country of tax residence. Proper planning and proof of tax residency abroad are essential to determine whether the Double Taxation Agreement between South Africa and your country of tax residence offers and relief on your policy withdrawals.
- Typically, expatriates must provide identity documents, proof of confirmation of non-residency in South Africa, foreign tax residency and completed withdraw forms specific to their retirement fund.
Have Questions About the Two-Pot Retirement Policy?
The new retirement system brings significant changes that may affect your ability to access and manage your savings—especially if you’re living abroad or planning to emigrate. To help you make sense of it all, we’ve compiled clear answers to the most common questions, along with expert guidance on how to navigate the process confidently.