Members of occupational retirement funds emigrating after implementation of the two-pot retirement system
By Anita Roodman, Senior Legal and Technical Specialist
A South African tax resident is an individual who is resident in South Africa for tax purposes, either by way of being ordinarily resident (the place where the person resides in the ordinary course of life) or by way of physical presence. The landscape for occupational retirement fund members ceasing to be SA tax residents post implementation of the two-pot retirement system looks as follows:
Emigration where a member leaves service prior to retirement
| Component | Payment of benefit | Taxation if taxable in South Africa |
| Vested | Members remain entitled to full withdrawal of their vested component upon leaving service prior to retirement. | Taxed in accordance with the lump sum withdrawal tax tables. |
| Retirement | Members are only entitled to receive their retirement component as a withdrawal benefit after an uninterrupted period of three years of not being a tax resident. | Taxed in accordance with the lump sum withdrawal tax tables.
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| Savings | Amounts in the savings component remain accessible as a savings withdrawal benefit. | Included in the member’s gross income and taxed at their marginal tax rate. |
When a person leaves employment and emigrates, the ordinary resignation benefit rules apply. Amounts in the vested component and savings component remain accessible as either a withdrawal benefit or a savings withdrawal benefit and are taxed accordingly. The retirement component will have to be preserved in the fund and utilised towards providing an annuity upon retirement.
If a member ceases to be a tax resident for a period of at least three years, full withdrawal of the retirement component will be allowed, similar to the emigration rule for preservation and retirement annuity funds. Such members will therefore no longer be forced to purchase an annuity with the retirement component. In this instance, the retirement component withdrawal is taxed in accordance with the lump sum withdrawal tax tables.
Emigration after retirement from employment
Retiring members cannot purchase a pension directly from an insurer abroad. Deferred retirees who are emigrating and do not wish to receive an annuity in South Africa, have the following options:
| Component | Payment of benefit | Taxation if taxable in South Africa |
| Vested | The vested component will still need to be annuitised unless the benefit is transferred to a retirement annuity fund or preservation fund, where the three-year non-tax resident rule may apply. | Lump sums as a result of the three-year non-tax resident rule will be taxed in accordance with the lump sum withdrawal tax tables. |
| Retirement | Deferred retirees may be entitled to receive their retirement component as a withdrawal lump sum benefit after an uninterrupted period of three years of not being a tax resident.
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It will be taxed in accordance with the lump sum withdrawal tax tables despite it being after retirement from employment. |
| Savings | The savings component remains accessible as a savings withdrawal benefit. | Included in the member’s gross income and taxed at their marginal tax rate. |
The three-year non-tax resident rule was not introduced for the vested component and the vested component cannot be transferred in isolation to another fund. In practice, this means that deferred retirees who do not wish to receive a retirement benefit in South Africa, will have to transfer their retirement component and vested component to either a retirement annuity fund or a preservation fund, where the three-year non-tax resident rule may apply. These members must be aware that the transferred amount will be taxed as a withdrawal benefit should the three-year non-tax resident rule be applied in the retirement annuity or preservation fund, thus not qualifying as a retirement benefit taxed at a more favourable rate.
A large portion, or in some cases the entire portion, of a provident fund member’s vested component may still qualify to be taken as a lump sum at retirement. However, the dilemma is that if those members also have a retirement component, this component must be taken as an annuity when they elect to retire from the fund, unless it is less than the de minimis amount. Members will not be able to elect retirement from one component while the other components are treated as deferred retirement benefits, with a view to applying the three-year non-tax resident rule. The election to retire from the fund is considered one tax event.
Emigrating deferred retirees will have to do careful planning before they decide what to do with their retirement benefit.
Double taxation agreements
When it is established that tax is payable on any retirement fund benefit, the double taxation agreement between South Africa and the person’s country of residence should also be considered to determine which country has the taxing rights on the retirement fund benefits. If the retirement fund benefit is subject to tax in the country of residence and not in South Africa, there would not be an obligation on the fund to withhold/deduct any taxes in respect of such member.
19 August 2025