Navigating Financial Planning for South Africans Emigrating Abroad
The trend of South Africans seeking new opportunities abroad has been on the rise, with many relocating to countries such as Portugal, New Zealand, the US, the UK and Australia. This growing phenomenon highlights both challenges and opportunities for Financial Planners to adapt their strategies to the evolving landscape of international mobility.
Recent statistics reveal the scale of this migration: approximately 12,500 South Africans have moved to Portugal, 71,000 to New Zealand, 140,000 to the US, 206,000 to Australia and 217,000 to the UK. These figures underscore the urgent need for Financial Planners to refine their approaches to cater to clients relocating internationally.
As global mobility increases, financial planning must address the complexities of cross-border issues, particularly international pension planning. Financial Planners are presented with the dual challenge of providing comprehensive advice for clients moving abroad while also seizing the opportunity to enhance their service offerings.
“There are more South Africans living outside of South Africa now than at any other point in our country’s history. But it’s not a South African issue, it’s a worldwide phenomenon that is here to stay, and one which places Financial Planners at risk of losing their wealthier clients if they cannot provide relevant cross-border solutions to them. This means having a global mindset to financial planning is becoming increasingly important,” says Rex Cowley, Director and Co-Founder of Overseas Trust and Pension.
He explains the evolving nature of financial strategies in response to this trend and how navigating financial planning for South Africans emigrating abroad presents both challenges and opportunities.
“Emigration is a growing trend, and understanding how to adapt financial strategies to accommodate clients moving to countries like Portugal, New Zealand, the United States of America (USA), the United Kingdom (UK) and Australia is crucial. Embracing a global mindset and offering tailored cross-border solutions allows Financial Planners to transform challenges into opportunities, ensuring their clients’ wealth is effectively managed and their needs are met, regardless of their location.”
In recent years, emigration patterns have shifted significantly, with Portugal emerging as a particularly popular destination. Cowley explains, “We’ve seen notable changes over time, especially in migration corridors. Portugal, the new kid on the block, now hosts around 12,500 South Africans. These expatriates are typically high-net-worth individuals attracted by the financial incentives Portugal offers, as well as its lifestyle and security.”
Ranked as the third safest country in the world, Portugal is highly favoured by those looking to relocate. Its pleasant climate, rich cultural heritage and friendly atmosphere make it particularly appealing.
“The country has implemented financial incentives to draw in foreigners, such as tax exemptions and advantageous pension arrangements. For example, Portugal’s residency programmes and pension schemes provide tax benefits on income and gains, with no wealth or inheritance taxes, creating an efficient environment for managing pensions and making it an ideal destination for high-net-worth individuals,” adds Cowley.
In addition to Portugal, other countries are also attracting a number of high-net-worth South African expatriates. “We’re seeing substantial numbers of South Africans moving to places like Ireland and the Netherlands. The Netherlands, in particular, has a strong affinity with South Africa, given the Dutch heritage many South Africans share and the prevalence of dual citizenship with Holland. The country offers excellent education, ample work opportunities and robust health services, making it a key destination with about 41,000 South Africans now residing there,” notes Cowley.
Canada is another popular choice, offering South Africans a lifestyle similar to what they’re accustomed to, albeit in a higher-tax environment. Despite this, Cowley notes that around 51,000 South Africans have made the move to Canada, drawn by its outdoor lifestyle and abundant opportunities. New Zealand, with its cultural similarities to South Africa, has also seen around 71,000 South Africans emigrating there. The shared values and lifestyle between South Africans and Kiwis make New Zealand an appealing destination for those seeking to start anew abroad.
For those considering New Zealand, Cowley notes: “New Zealand’s pension system is highly advantageous for those with Foreign Pensions with the tax inclusion rate for Foreign Pension income starting at 4.76%, making it an attractive destination.”
Cowley elaborates on the benefits of using qualifying Foreign Pensions in Australia, referred to as Foreign Superannuation Funds, and emphasises the flexibility and tax advantages available.
“In Australia, clients have the option of choosing between regular withdrawals or lump sums from their qualifying pension schemes. Regular withdrawals are taxed at the marginal rate, resulting in a low effective tax rate on significant pension amounts. For example, an annual withdrawal of 250,000 Australian dollars may incur a tax of only 3,900 dollars.
On the other hand, lump sums are treated differently, with capital returned not being taxed and only the growth taxed at the marginal rate. This flexibility to take regular withdrawals or lump sums for capital expenditures enhances the appeal of Australian Superannuation Funds. Lastly, Australia’s intricate pension and tax regulations require careful navigation to fully optimise the benefits.”
He continues: “In the United States, Foreign Pensions are classified as trusts and do not benefit from tax incentives, although they do offer asset protection and the avoidance of probate. The income from these pensions is taxable. The UK, meanwhile, presents its own set of challenges due to recent political changes affecting Foreign Pensions. While certain exemptions on estate duty apply, income tax remains a significant factor, requiring careful planning.”
As South Africans continue to explore new horizons abroad, the role of Financial Planners becomes increasingly critical. By staying informed about the unique financial landscapes of popular emigration destinations and adapting strategies accordingly, Financial Planners can safeguard their clients’ wealth and position themselves as indispensable advisers in a globalised world.
Embracing this challenge with a proactive approach allows Financial Planners to turn potential obstacles into opportunities, ensuring their clients’ financial well-being no matter where life takes them.