Employing foreign nationals is a common and legally recognised practice in South Africa. Nevertheless, recurring questions arise about retirement fund participation, with uncertainty around fund membership and the ability to access benefits when circumstances change. Felicia Hlophe explores the circumstances under which foreign national employees may participate in South African retirement funds and the challenges they may face when accessing benefits on leaving their employment or the country.
Who can join a South African retirement fund?
South African legislation does not prohibit non-South African citizens from joining local retirement funds. Eligibility is determined by the rules of each fund, which constitute a binding contract between the fund, its participating employers and its members.
Many occupational retirement funds, including the Allan Gray Umbrella Retirement Fund, define “employee” broadly enough to include foreign nationals employed in South Africa. Where a foreign national meets the eligibility criteria in a fund’s special rules, they are entitled to membership.
Retirement annuity fund rules typically apply similarly broad membership criteria. Where an employer uses a group retirement annuity administration system to administer individual retirement annuities, such as the Allan Gray Group Retirement Annuity, foreign national employees can be included as part of the group.
Advantages of fund membership for foreign national employees
Regulated retirement savings
South African retirement funds operate within a well-regulated environment, with the Financial Sector Conduct Authority (FSCA) enforcing prudential oversight, governance standards and fiduciary duties. For foreign nationals participating in local funds, this can provide comfort that their retirement savings are professionally managed and protected by regulation.
Tax efficiency during South African tax residency
Becoming a fund member is a tax-efficient way to save for retirement, as a portion of a member's contribution is tax-deductible against their South African income. Contributions and investment returns are exempt from income tax, dividends tax and capital gains tax while the member is invested – a big win over the long term.
Administrative uniformity and equity
From an employer’s perspective, including foreign national employees in the same retirement arrangement as South African employees promotes benefit equality and simplifies payroll administration, particularly in organisations with a mobile or multinational workforce.
Key drawbacks and legal limitations
The two-pot retirement system
Since the introduction of the two-pot retirement system on 1 September 2024, retirement fund contributions for both South African and foreign national members have been allocated into three different components:
- The savings component was seeded with a maximum of R30 000 at the inception of the system and comprises one-third of contributions made after 1 September 2024. The savings component allows for one withdrawal of at least R2 000 each tax year (1 March to end-February) before retirement. At retirement, any remaining balance can be taken as cash or used to purchase a retirement income product.
Although the two-pot retirement system allows limited access to cash benefits prior to retirement, it may be impractical for foreign national employees who may not work in South Africa for long periods. - The retirement component comprises two-thirds of contributions made after 1 September 2024. The retirement component must be preserved until retirement. At that point, it must be used to purchase a retirement income product.
A member may access this component if they have not been a South African tax resident for an uninterrupted period of at least three years, or if they left South Africa when their work or visitor’s visa expired. This is significant for foreign national employees, as they may be unable to access their accumulated savings benefit for years after leaving South Africa. - The vested component comprises benefits accumulated up until 31 August 2024, which remain governed by the pre-existing rules.
A member of an occupational fund, such as the Allan Gray Umbrella Retirement Fund, may withdraw from their vested component before retirement when their employment at the participating company ends and they are no longer an active member. A member of a retirement annuity fund, including the Allan Gray Retirement Annuity, cannot access any pre-retirement benefits from this component unless they have not been a South African tax resident for an uninterrupted period of at least three years, or left the country when their work or visitor’s visa expired.
Exchange control and double taxation agreements
When a benefit becomes payable, the cross-border transfer of funds triggers exchange control reporting and verification requirements. The retirement fund must confirm that the member is a non-resident and that all South African Revenue Services (SARS) tax clearance requirements have been met, according to the South African Reserve Bank (SARB) rules.
Locally, withdrawal benefits are taxed according to the applicable lump-sum tax tables. While double taxation agreements (DTAs) may affect where taxing rights ultimately lie, their application to retirement fund withdrawals is not uniform across jurisdictions. As a result, foreign employees may face double taxation where South African tax is not fully relieved in their country of residence.
How this works in practice
Employees with critical skills visas
A foreign national employee who holds a critical skills visa, issued in terms of the Immigration Act, may become a member of the Allan Gray Umbrella Retirement Fund, or may have their investment administered via the Allan Gray Group Retirement Annuity, provided they meet the fund’s requirements and their terms of employment. The member can access their full retirement fund benefit once their employment ends, their visa has expired, and they have left the country.
Employees with Zimbabwean Exemption Permits
A Zimbabwean Exemption Permit (ZEP), as defined under the Immigration Act, is an exemption that grants qualifying holders similar rights to permanent residents for a specified period.
ZEP holders may become members of the Allan Gray Umbrella Retirement Fund and may have their investment administered via the Allan Gray Group Retirement Annuity, if they meet all fund criteria and rules. However, legal restrictions apply to accessing benefits. When a ZEP holder terminates their employment and returns to Zimbabwe:
- They are able to access the full value of their savings component if they have not yet taken a withdrawal in that year of assessment
- As a member of the Allan Gray Umbrella Retirement Fund, they are able to access the full value of their vested component immediately
- They may access their retirement component (and, for members of the Allan Gray Retirement Annuity, their vested component) three years after they have ceased to be a tax resident in South Africa, provided they can prove cessation of South African tax residency and residency in another jurisdiction for three consecutive years
What this means for employers
Foreign national employees can belong to South African retirement funds, but accessing their benefits when they leave the country is complex. Longer-term tax residents may still enjoy the regulatory protection and tax efficiency these funds offer to members, while temporary assignees might see limited practical value due to preservation rules, non-residency requirements and exchange-control processes.
Employers should weigh these factors when deciding on an appropriate retirement fund for foreign national employees on their payrolls.