Time is running out to prevent the National Treasury’s proposal to remove the long-standing tax exemption for foreign pensions in the 2025 Draft Taxation Laws Amendment Bill. The deadline for comments is 12 September. If implemented, the change will not only risk driving away much-needed skilled expatriates and wealthy retirees but also create deep inconsistencies in South Africa’s tax system. Treasury should withdraw this proposal and reconsider its full impact.
Background and Previous Warnings
This is not the first time the issue has surfaced. When section 10(1)(gC) – the foreign pension exemption – was introduced in 2000, the Treasury’s own Explanatory Memorandum acknowledged the pitfalls of taxing foreign pensions. It warned that doing so could discourage foreigners from retiring in South Africa and highlighted practical problems: foreign pension contributions were never deductible here, lump sums would be treated inconsistently, and SARS would face the burdensome task of assessing hundreds of foreign funds.
Crucially, Treasury concluded that further work was needed to determine the economic impact before any change was made. Twenty-four years later, that work has still not been done – yet Treasury is now pressing ahead regardless.
Questions of Fairness and Consistency
The fairness of the proposal is particularly questionable. South Africans contributing to local retirement funds enjoy upfront deductions and tax-free growth inside the fund. Foreign pensions, by contrast, received no such benefits in South Africa, meaning the fiscus has suffered no loss. To now tax those savings on withdrawal is to take without ever having given.
Even worse, the proposal will introduce glaring inconsistencies between local and foreign retirement savings. Because foreign funds do not fall within the Act’s definitions of “pension fund”, “provident fund”, or “retirement annuity,” they are treated anomalously. For example, rights to foreign pension annuities would fall into a South African estate and be subject to estate duty – unlike local retirement annuities, which are exempt. At the same time, the amendment would tax foreign pension annuities but not foreign pension lump sums.
A retiree who draws a steady income would be penalised, while one who takes a lump sum may avoid tax altogether. These distortions make little policy sense and erode confidence in our tax system.
Real-Life Impact on Retirees
The impact is not theoretical. The Institute for International Tax and Finance has already been inundated with anxious queries. Take James, a British expat who retired to the Cape with his wife after a lifetime of work in the UK. He assumed his UK pension, which benefits from double tax treaty relief in the UK, would continue to also be exempt in South Africa. Under the proposed law, he now faces tax at marginal rates of up to 45% on his pension, slashing his retirement income. He is urgently considering relocating to Greece, Mauritius or Thailand, all of which offer far more favourable treatment of foreign pensions.
Australians face an even harsher blow: outright double taxation. Australia’s superannuation system taxes contributions and income within the fund but exempts disbursements to retirees over 60. Under the proposed amendment, those very disbursements would be taxed again in South Africa. Australians would thus be taxed twice – once in the fund in Australia and again here on withdrawal. Every country has its own pension rules. Without careful consideration, South Africa risks creating a patchwork of punitive and inequitable outcomes for foreign retirees.
Call for a Pause and Rethink
This is no fringe issue. An estimated 200 000 UK expats alone live in South Africa, plus thousands more from Australia, New Zealand, Europe and North America, collectively representing billions in retirement capital. Many are already retired or nearing retirement. The proposal sends the wrong signal to them about South Africa’s approach to international taxation at a time when the country desperately needs to attract – not repel – foreign investment, skills, and capital.
Treasury should pause and reconsider. The issues identified back in 2000 remain unresolved. No economic analysis has been published, and no comprehensive framework exists to align the treatment of foreign and local pensions across contributions, growth, withdrawals, and estate duty. Moving ahead without addressing these fundamentals will only create inequity, confusion, and disincentives for much-needed expats to remain in South Africa.
If the amendment is enacted, expats must act quickly: review tax residency, update estate plans, and restructure affairs – even consider relocating to jurisdictions with more favourable rules. Professional advice will be essential.
Now is not the time for hasty short-term revenue measures. Treasury should work with stakeholders to craft a coherent, fair, and internationally competitive framework for foreign pensions. Pushing ahead with this flawed proposal risks chasing away exactly the people South Africa most needs – a costly own goal the country cannot afford.
Have your say before 12 September! The removal of the foreign pension tax exemption could have devastating consequences for retirees, expats, and South Africa’s economy. Share your views and submit comments on the 2025 Draft Taxation Laws Amendment Bill.
Let us know by leaving a comment below, or send a WhatsApp to 060 011 021 1
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