South Africans looking to make appropriate retirement arrangements should consider using up all of their annual foreign exchange reserves and should choose the right offshore investment options to protect themselves from a volatile economic and political environment.
This is according to Sovereign Trust SA.
Many South Africans still feel conflicted about investing offshore, in part because they don’t understand the differences between local and international pension schemes, said Richard Neal, managing director of Sovereign Trust SA.
“While offshore pension funds, like those falling under Guernsey Regulation 40 (ee), offer a range of advantages over funds based in South Africa, it is critical that potential investors understand the differences between local and international options before committing their assets, ”Neal said.
In South Africa, there are three main retirement arrangements – pension funds, preservation funds and retirement annuities – each of which is funded in a specific way.
However, they are limited in terms of how much can be invested in any given year, as well as how and where funds can be invested. There are also restrictions on how investors can claim their benefits, with pension and RA holders having to cancel two-thirds of their investments.
For comparison, the Guernsey 40 (ee) schemes are tax-exempt for non-residents and allow contributions in various forms. However, the main differences that come into play relate to how investments are made and how benefits are derived: there are no geographic or other restrictions on investments, and members can enjoy the benefits at their own expense. after 50 years.
“It is also important that local investors realize that international pension plans do not violate General Anti-Avoidance Rules (GAAR), as long as they are recognized as bona fide pension plans, and are administered and appropriately managed ”. Neal said.
Leah Mannie, Pension Consultant at Sovereign, stressed the importance for financial advisers to be able to transfer their clients’ pension funds using vehicles like a Self-Invested Personal Pension (SIPP), which is one way for an expat UK to gain investment flexibility and better control of their UK-based pension.
This is of particular interest to the vast diaspora of British expats living in South Africa and around the world.
For South Africans who have recently emigrated financially, but still have retirement and pension funds in South Africa, the need to transfer their funds to overseas-based pension accounts has become even more pressing, with new tax laws effectively blocking their funds in the country for three years.
Mannie said expats should be concerned about leaving their retirement provisions in South Africa. Aside from an uncertain economic future, AS-based funds are more difficult to manage, and forced investment in prescribed assets could affect their hard-saved savings.
“The concern is that South Africa-based pension and pension funds will be forced to allocate a fixed percentage of their funds to government infrastructure projects and bailouts for state-owned enterprises,” Mannie said.
“Those who have left South Africa should consider their options for their left-behind retirement funds, if they haven’t already.”
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