Beyond borders: How foreign pensions empower South Africans to build global wealth

Source: Supplied. Rex Cowley, director and co-founder of Overseas Trust and Pension.

“For South Africans considering retirement abroad, understanding foreign pensions is key to a successful, compliant financial strategy and future,” explains Rex Cowley, director and co-founder of Overseas Trust and Pension, a specialist provider of international trust, retirement and pension solutions.

“These pensions provide unique advantages for those looking to maintain global wealth while adhering to South African legal and regulatory standards.”

Foreign pensions: Types and key benefits

Foreign pensions can be categorised into three main types: social security, occupational, and personal pensions. Each option carries unique benefits and is open to individuals under different circumstances.

While social security pensions provide government-mandated benefits and occupational pensions are employment-linked and feature contractual benefits, personal pensions offer distinct advantages for investors.

Free from the restrictions of social security and employment-based pensions, personal pensions allow investors to self-fund their retirement in an unconstrained way and with investment and currency freedom.

“Personal pensions are particularly appealing for those who want a hands-on approach,” says Cowley. “With a self-funded model, investors have significant input into the assets held and the freedom to customise the pension portfolio according to their requirements - essential criteria for those planning a retirement abroad with the security of global assets.”

Cowley adds that these personal pensions allow South Africans to invest in various asset classes and provide tailored solutions that evolve with changing financial needs, international aspirations, and the client’s life stage.

A strong regulatory framework ensures peace of mind

For South Africans, investing in foreign pensions must be undertaken with a clear understanding of the local legal landscape.

To this end, the South African legislation and regulation establishes specific standards that foreign pensions must meet to be recognised as legitimate retirement funds. This robust framework ensures that investors’ pensions meet stringent requirements for structure, contributions, and payouts.

“To qualify as a foreign pension in South Africa, the scheme must be established by law, have the sole purpose of providing retirement benefits, and be structured to serve its members exclusively,” notes Cowley.

“Regulatory oversight by the Financial Sector Conduct Authority (FSCA) in respect of foreign products and foreign financial service providers protects South Africans by setting a clear framework for the promotion and advice relating to foreign pensions in South Africa, allowing clients to make informed decisions with confidence.”

While foreign pensions do not qualify for tax relief on contributions in South Africa, income tax exemptions are available on benefits paid, where the pension was funded by an employer in respect of services rendered abroad by the individual.

This tax benefit is valuable for South African expatriates who build foreign pension reserves as they don’t get South African tax relief on the contribution, but then get relief at the point of taking benefit.

As such, foreign pensions can play a very important role for South Africans working abroad and who will return to South Africa.

Maximising investment potential within exchange-control regulations

South Africans looking to invest offshore face exchange-control regulations that impact how much they can contribute to foreign pensions. Here, the South African Reserve Bank (Sarb) permits up to R1m under the discretionary allowance, and up to R10m with a tax clearance, allowing for favourable contributions while ensuring compliance with national financial policies.

“These regulations ensure that South Africans can participate in global investment opportunities, keep their wealth in the secure environment of a pension, and have exposure to hard currency and access to international investments, all while remaining aligned with South African laws.

"Exchange-control allowances are vital for helping South Africans build wealth in international markets, empowering investors to retain assets in foreign currency or convert them as needed - a notable benefit for those concerned about currency fluctuations and market stability,” adds Cowley.

Tailored benefits for different types of investors

From currency diversification to asset protection, foreign pensions provide a strategic retirement solution for a variety of South African investors:

Domestic residents: Many South Africans living in the country are drawn to foreign pensions for currency hedging and access to international investments. However, these pensions provide a safe and streamlined way to hold assets internationally while simplifying the succession of wealth on death by mitigating the complexity of cross-border inheritance and foreign tax laws.

This means that an individual only has to consider their local position, which simplifies their affairs on death and can save significant costs and time during a difficult period for a family.

South African expatriates: For South Africans working abroad, foreign pensions are a smart way to accumulate wealth in hard currency. Contributions made by foreign employers often qualify for tax exemptions on withdrawal, allowing expatriates to grow their wealth tax-efficiently while still working overseas.

Permanent emigrants: For South Africans relocating permanently, foreign pensions offer a flexible way to consolidate and protect wealth internationally at emigration.

These pensions allow them to hold wealth internationally, which is often beneficial when considered against transferring all assets to their new country of residence. This helps emigrants retain control over their international wealth while benefiting from specific foreign tax exemptions on foreign pensions in territories like Australia, New Zealand, the UK, and European destinations such as Portugal and Spain.

Foreign pensions also form an essential tool in securing visas and residency in many territories, such as Mauritius, Malta and Cyprus, as well as in Asian countries like Thailand and Malaysia.

Creating a lasting legacy

Foreign pensions offer South African investors a strategic gateway to global markets, combining wealth preservation with growth opportunities. By diversifying retirement portfolios and accessing hard currency and global markets, these pensions lay the foundation for long-term financial security.

“A foreign pension is more than just a retirement plan; it’s a solution for building a legacy, allowing investors to protect their wealth and leave a lasting impact or provide certainty to those left behind.

"With the right expert guidance and strategy, South Africans can confidently pursue a global wealth-building plan - a powerful path to prosperity that transcends borders and endures for generations,” concludes Cowley.