Business Brief

Deciding to go and work and live abroad – or maybe even emigrating – is an option many graduate professionals consider probably at least once in their lifetime. Having the correct information – including what the impact of such a step would be on long-term insurance policies – is crucial to make such a major lifestyle change a success.

When considering emigration, there are two major questions regarding PPS membership and product offerings to consider. The first is the question of whether a person can apply for a new insurance policy while living aboard, while the second is, on whether – once living abroad – members can increase/enhance/adjust existing life insurance policies.

Acquiring a policy

PPS has structured its policies in such a way that the life insured is not restricted with regard to travel or residence. The policy, therefore, allows members to reside in another country, but to keep their South African policy. It is crucial, however, that a person must already be a PPS member with a policy before they emigrate. As soon as a person is domiciled in another country, they cannot take up a PPS policy.

In short, PPS cannot sell a new product in foreign jurisdictions seeing that we are – among other things – not licensed to sell insurance products overseas. We do not have permission to operate (sell) an insurance policy in any country, except in South Africa. However, it does not mean that a person needs to reside permanently in South Africa to become a member. They can apply for a PPS policy as long as they are in South Africa when doing so, even when they are just visiting the country.

Increasing, enhancing and adjusting products

If a member decides they want to emigrate or work abroad after they acquired PPS life insurance benefits – they have to be in South Africa at the time of application, medical underwriting and acceptance of the terms offered by PPS (Counter-Offer if applicable) – they can then make adjustments to their PPS policies (increase/decrease cover amounts and or adding any PPS rider benefits (CI 100%, Core 100%, CatchAll, EXPANDER Rider benefit, EXACT Rider benefit, Admission Rider benefit, Family Responsibility Rider benefit, Permanent Incapacity Booster benefit, Occupational Rider benefit, Education Cover Rider benefits and Accelerated benefits)) while living or working aboard. This is because making adjustments to existing PPS policies is not seen as entering into a new policy agreement. These enhancements fall outside the framework of a foreign jurisdiction.

Currency and bank accounts

A member’s PPS Policy will always be in Rand, therefore, to determine the cover the member needs, the required amount must be converted from a foreign currency to Rand. This entails that significant changes in the exchange rate will affect the member’s cover.

Members will be required to have a South African bank account from which the premiums will be collected. Claims will also be paid to that account. It is the client’s responsibility to move the funds of paid out claims to their new country of residence, via a blocked account.

While working/living abroad

When a PPS member decides to emigrate or to work in another country and they have PPS life insurance policy (Sickness and Permanent Incapacity benefit, Professional Life Provider benefit, Professional Disability Provider benefit, Critical Illness Cover benefit and or Education Cover benefit) that policy will cover them for the duration they live or work in that country. This is one of PPS’s unique features: the fact we provide our members with international cover when they work or live abroad. They do not need to inform PPS when and if they emigrate and there is no list of countries that are excluded. PPS members can work and live, and travel to any country.

PPS retirement annuities

Before 1 March 2008, retirement annuity fund members who had emigrated from South Africa and were no longer tax residents, had to wait until they reached their retirement age before they could access their benefits.

The Income Tax Act 58 of 1962 (ITA) was amended with effect from 1 March 2008 to allow a member who discontinues their contributions before their retirement date to be entitled to the payment of a lump-sum benefit, where that member emigrated from South Africa.

A member can only withdraw their benefit on emigration if they have not yet elected to retire.

From a PPS process perspective, the retirement annuity fund administrator, trustee or insurer must complete a manual Form C and all necessary supporting documentation needs to be attached to apply for a tax directive, this includes:

• Completed retirement funds withdrawal form;
• Letter from the Authorised dealer (client’s bank) on a bank letterhead confirming emigration and the blocked bank account details;
• Certificate of Residency (see explanation below); and
• Tax Clearance Certificate in terms of emigration or an attested/notarised affidavit indicating the reason a Tax Clearance Certificate cannot be provided.

Only a certificate of residency issued by the tax authority of the country in which the member resides – in accordance with the Double Taxation Agreement (DTA) between South Africa and the country of residency – will be accepted. If there is no DTA in place, the member must still obtain a certificate of residency from the relevant tax authority.

The lump sum commuted on emigration will be taxable in the member’s hands as a lump-sum withdrawal benefit.

The after-tax amount received from the retirement annuity will form part of the member’s foreign investment allowance of R10 million per annum per single person or R20 million per annum per family unit. These allowances are available to taxpayers in good standing with the South African Revenue Service which are over the age of 18 years.

If a member has an investment-linked living annuity, the capital amount in the fund cannot be transferred offshore unless there is less than R50 000 left in it. The member can, however, transfer the income from the annuity abroad, as with other passive incomes such as rental income, dividends and trust income.

Please note that as per the Taxation Laws Amendment Act 23 of 2020, the definitions of “pension preservation fund”, “provident preservation fund” and “retirement annuity fund” were amended with effect from 1 March 2021. This amendment allows persons who have ceased to be South African tax residents from 1 March 2021 for an uninterrupted period of three years or longer, to withdraw the full benefit before retirement age. Therefore, persons who have ceased to be South African tax residents, will have to wait three years or longer from the date on which their residency ceased before they can withdraw their pension benefit from the aforementioned funds.

PPS Investments

With regards to the PPS discretionary investments and unit trusts, financial emigration triggers an “exit charge” in the form of capital gains tax (CGT) on worldwide assets as stipulated in section 9H of the ITA. Consequently, there will be a deemed disposal of a person’s discretionary investment and unit trust the day before their South African tax residency ceases and CGT will be levied.

The decision regarding the transfer of retirement funds abroad can be complex. The withdrawal amounts are subject to high lump-sum withdrawal taxes, and if there is a possibility that a member may return to South Africa at a later stage, it may be wise to preserve some or all the funds in a local preservation fund.

By Hannemie Mulder (Technical Specialist, Specialist Support Services) and Monique Drotsky (Technical Marketing Specialist)

Kindly note that this does not constitute financial advice the information provided is purely informational In terms of the Financial Advisory and Intermediary Services Act an FSP should not provide advice to investors without an appropriate risk analysis and thorough examination of a client's particular financial situation The information, opinions and communication from the PPS Group or any of its subsidiaries, whether written, oral or implied are expressed in good faith and not intended as investment advice, neither do they constitute an offer or solicitation in any manner. PPS is a licensed Insurer and authorised FSP.