Pensions and Retirement Planning in South Africa

Pension plans are an important component of all wealth planning. For the internationally mobile individual, there are many additional aspects of retirement planning to consider and it is essential that the chosen solution should be correctly structured to suit your circumstances.

Operating across a number of different jurisdictions worldwide, Sovereign is a market leader in the provision of international pensions and provides a ‘one-stop shop’ for retirement planning. Our proposition encompasses both personal and occupational schemes, and includes:

  • Qualifying Recognised Overseas Pension Schemes (QROPS) – trust and contract
  • Qualifying Non-UK Pension Schemes (QNUPS)
  • Relevant Non-UK Schemes (RNUKS)
  • Guernsey Retirement Annuity Trust Schemes (RATS)
  • UK Self-Invested Personal Pension Schemes (SIPPs)
  • IOM Self-Invested Personal Pension Schemes
  • UK Small Self-Administered Schemes (SSAS)
  • International Pension Plans (IPPs)

As well as product provision, Sovereign’s services cover a broad spectrum including scheme administration, technical pensions’ know-how, pension transfer guidance, investment management, actuarial services, tax planning and wealth structuring.

South African investors are increasingly turning to Guernsey’s ‘40(ee)’ international retirement plans to protect their assets from the ravages of tax and currency depreciation. These plans are named after section 40(ee) of the Income Tax (Guernsey) Law 1975, which allows international Guernsey-based Retirement Annuity Trust Schemes – known as RATS – to make payments to non-Guernsey resident individuals without deduction of tax.

There is no limit to the level of contributions or to the fund size, and payments can be structured to suit the individual – a mixture of lump sum and regular income payments that can be made in any recognised currency and at any time. As a result, ‘40ee’ international retirement plans are ideal for internationally mobile South Africans, wherever they happen to be working or residing in the world.

Sovereign’s ‘40ee’ plan – branded as the Conservo International Retirement Plan – is specifically tailored to the South African market and is a very effective estate planning and diversification tool. These plans differ from pension schemes because there is no centralised pot of funds. A specific account is established for each plan member, which is segregated from other members’ assets ensuring that a member’s retirement funds are held solely for their own benefit.

South Africans are able – and even encouraged – to make use of the South African Reserve Bank’s generous R10 million foreign investment allowance to diversify their estates and gain overseas (‘offshore’) exposure. They are also able to move existing offshore assets into the Conservo. The portfolio can hold a wide range of investments, including shares in listed and private companies, derivatives and physical assets, such as art.

The assets within the fund are free from income tax and capital gains tax (CGT) because they are held in a Guernsey retirement fund. As a result, the growth on investments can be optimised from the outset. There will only be a taxable event when the growth portion of the funds is accessed but, if the amount that is draw down and brought back to South Africa does not exceed the capital investment, there will be no liability to tax in South Africa either.

The Conservo is also highly flexible. Unlike a pension scheme, there is no actuary to prescribe how much a member is permitted to withdraw. The member attains full access to the funds between the age of 50 and 75. Prior to the age of 50, a loan of up to 50% of the fund value is also permitted.

Funds invested into Conservo are also portable. If a member relocates, they can continue to draw down on the fund, although advice should always be sought from the tax authorities in the new country of residence.

The Conservo further offers a range of succession benefits. Upon the death of a member, the trustee will pay the balance in the member’s fund to their estate and/or to the member’s dependants, relations or other individuals as specified by the member.

The Davis Tax Committee (DTC) has concluded that foreign trust-based arrangements fall outside the judicial purview of the South African Revenue Service (SARS) because they are non-resident in terms of the Income Tax Act. This means that properly structured and administered trust-based arrangements continue to offer a gross roll up environment.

In respect of foreign retirement plans, the DTC concluded that income from foreign pensions was taxable unless the pension was funded by an employer for services rendered overseas. According to high end tax opinions there is no reason why an individual should not make use of a foreign pension provided it was used for the purpose for which it’s intended – to provide in retirement.

The Conservo therefore offers:

  • Tax free growth in South Africa and Guernsey
  • Freedom to choose investments
  • Ability to draw loans from your investment
  • Ability to hold funds in multiple currencies
  • No requirement for an annuity
  • Flexibility if the member re-locates to another country
  • Exemption from South African estate duty
  • A cost effective pricing structure

An international retirement savings plan is a low cost, highly efficient method to plan your retirement and long-term future. It enables you to accumulate wealth to fit your financial circumstances as they change. There is no need for a regular fixed monthly commitment as assets can be added to the plan at any time. Free from income or capital gains tax, retirement fund growth will be maximised from the outset. International retirement savings plans can be established as individual plans, joint plans for spouses or as multi-member plans.

Interested in Pensions and Retirement Planning in South Africa?

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Sovereign Trust (Gibraltar) Limited
Tel: +350 200 76173