/ 20 October 2010

Offshore savings

Steve asks: I have an offshore savings pensions account. I can’t afford to increase the annual payment, so would it be worth my while to somehow transfer it into a scheme here? It is a Royal Skandia investment and I’m not sure if I can transfer it, but I certainly can cash it in early. I am planning on retiring here.

Maya replies: You need to look at this investment in terms of your entire retirement plan. Some advisers would argue that having an offshore investment is a good diversification so you need to also consider that as part of your overall investment portfolio.

Jillian Kipling from Acsis makes the following points:

With any pension savings account it is always best to first assess the costs of early termination or the penalties incurred should you stop contributing.

You may discover that they are so severe that your only option is to continue with the investment to the maturity date.

Supplement locally
If you have analysed your financial plan and discovered that this investment is not going to be sufficient to retire on, you can always start another one here to supplement the income that you will one day earn from the offshore product.

Tax legislation
Every country has its own retirement legislation and tax laws and unless they are the same as South Africa’s (the Isle of Man’s is not), it is impossible to transfer the pension fund to a similar product here.

Investigate the tax benefits of investing in the Isle of Man versus the tax benefits of a retirement fund here (the earnings within a retirement vehicle in SA are tax free). You may find that SA tax benefits for a retirement fund far outweigh having money offshore.

Get information
Royal Skandia is owned by Old Mutual (the UK leg of Old Mutual), so it might be a useful exercise to contact an Old Mutual Offshore investment consultant in SA to get a better understanding of how the product works and what your options are.

Once you have assessed the cost, penalties and the full tax situation (tax deductions on entry, tax on investment returns, and tax on the final pension) you will be in a better position to make a decision.

Read more news, blogs, tips and Q&As in our Smart Money section. Post questions on the site for independent and researched information.