What Retirees Must Know About the 2025 Draft Amendment Bill
When John and Marisol (real names omitted) left Oxfordshire for Cape Town in 2022, they did so on a simple premise: their UK pensions would continue to arrive untaxed in South Africa. That assumption was the foundation of their financial plan and allowed them to enjoy a standard of living far beyond what their sterling income could buy back home.
Their monthly income, roughly £4,000, covered a large home in Somerset West, private healthcare, travel, and part-time domestic help. Now, this comfort faces disruption. National Treasury’s 2025 Draft Taxation Laws Amendment Bill proposes removing the exemption that has long shielded foreign pensions from local tax. If implemented, this would change the financial scenario for thousands of retirees, both expatriates and returning South Africans, who depend on foreign retirement income.
Why South Africa Has Been a Retirement Haven
To appreciate the potential impact of this proposal, we must first understand the economic appeal that drew retirees here in the first place.
According to Numbeo’s 2024 data, South Africa’s cost of living (excluding rent) is around 49% lower than in the UK, and rent prices are a full 172% lower. A comfortable city-centre apartment in Cape Town might cost around R20,000 per month compared to over £1,000 in London.
To put it differently, what R58,000 buys in Cape Town requires roughly R157,000 in London to achieve an equivalent lifestyle. In Johannesburg, maintaining the same standard of living that costs £6,700 in London would require only R53,000.
Even within South Africa, the baseline cost of living is relatively moderate. A local retiree’s essentials, including food, transport, utilities, insurance, medical cover, and rates, can range between R10,000 and R15,000 per month depending on region and lifestyle. The relative affordability of property, services, and labour has meant that retirees with foreign pensions can live with comfort, dignity, and often considerable luxury.
This affordability is what makes the foreign pension exemption such an important part of South Africa’s attractiveness. It is not just a tax perk, but really a financial bridge that turns South Africa’s lifestyle advantage into a sustainable retirement reality.
The Current Law: Exemption and Equity
Under section 10(1)(gC)(ii) of the Income Tax Act, any lump sum, pension, or annuity paid from a source outside South Africa for past employment abroad is exempt from normal tax. This exemption, in place since 2000, was designed to prevent double taxation and to make South Africa a viable residence for retirees with offshore pensions.
It is important to note that this exemption does not apply to foreign personal pensions unconnected to employment, nor does it affect foreign social security benefits, which remain exempt under section 10(1)(gC)(i).
This framework means that someone like John or Marisol, who receives a UK employment-linked pension, currently enjoys that income tax-free in South Africa. This principle aligns with most double taxation agreements (DTAs), which allocate taxing rights to the source country.
When Treasury first introduced the exemption in 2000, it recognised the risks of doing otherwise. In its own Explanatory Memorandum, Treasury warned that taxing foreign pensions could discourage foreigners from retiring in South Africa, create administrative burdens for the South African Revenue Service(SARS), and produce inconsistent outcomes. It concluded that the economic impact needed further study before any change should be made.
Twenty-four years later, that analysis remains undone, and yet the very risks identified then are being reintroduced now.
The Proposed 2025 Amendment
The 2025 Draft Taxation Laws Amendment Bill seeks to remove the exemption under section 10(1)(gC)(ii). If passed, all foreign pension income received by a South African tax resident would be included in their taxable income and subject to local tax rates of up to 45%.
The change would take effect from 1 March 2026, giving a short transitional period for restructuring. The amendment targets foreign pensions arising from past employment, meaning personal pensions and state social security benefits remain unaffected.
Treasury argues that this will align the treatment of local and foreign retirement income and close perceived gaps where retirees face “double non-taxation” in cases where the pension is not taxed abroad or in South Africa.
Critics argue this logic is incomplete. Foreign pensions were never deductible in South Africa, nor did the fiscus subsidise their accumulation through tax-free growth as it does for local retirement funds. To now tax these withdrawals is, as one commentator put it, to take without ever having given.
Inconsistencies and Unintended Distortions
According to Michael Kransdorff, CEO of the Institute for International Tax and Finance, the proposal creates glaring inconsistencies between local and foreign retirement savings.
Because foreign funds are not recognised under the Income Tax Act’s definitions of “pension fund,” “provident fund,” or “retirement annuity,” they fall outside the regime that protects local funds from estate duty and double taxation. Under the current proposals, foreign annuities would be taxed, but foreign lump-sum withdrawals may remain exempt. This penalises retirees who take income gradually and rewards those who cash out in full.
Such disalignment makes little policy sense and erodes trust in the coherence of the tax system. It also raises a larger legal question: can South Africa justify taxing income streams that were never eligible for domestic deduction or relief?
Who Would Be Affected, and How
The proposed change affects primarily South African tax residents, both foreign retirees on permanent residence and returning citizens drawing overseas pensions. Those on temporary residence visas, renewed every few years, may avoid tax if they remain non-resident under the “ordinary residence” or “physical presence” tests, but the boundaries are thin and easily crossed.
For a foreign retiree, the numbers are stark. Suppose Marisol draws £2,500 per month (R60,000) from a UK pension. Today, that income is untaxed. Under the new system, assuming an effective rate of 26%, she would lose R15,600 per month, or roughly R187,000 a year, to South African tax.
Australians could fare even worse. Their “superannuation” system already taxes contributions and fund income while exempting withdrawals after age 60. South Africa’s amendment would then tax those same withdrawals again, resulting in outright double taxation.
The issue extends beyond income tax. Foreign pension rights, unlike local annuities, would form part of a South African tax resident’s estate and attract estate duty. In effect, retirees could be taxed both during life and after death, something local pension holders are protected against.
Economic and Policy Implications
The proposed amendment is not merely a technical correction, it represents a change in posture. South Africa has long presented itself as a welcoming, affordable, and tax-efficient destination for retirees. That reputation has helped attract an estimated 200,000 UK expats, along with thousands from Europe, North America, and Australasia, collectively representing billions of rand in imported retirement capital.
Kransdorff warns that this amendment “sends the wrong message” about South Africa’s approach to international taxation. By taxing pensions that were never locally incentivised, the country risks appearing opportunistic rather than equitable.
The economic knock-on effects could be significant. Retirees are not just residents, they are investors and consumers. They purchase property, employ locals, and pay VAT, transfer duty, and capital gains tax. Their steady foreign income helps stabilise local communities and foreign exchange inflows.
Short-Term Realities and Planning Windows
Although the proposed implementation date of 1 March 2026 gives a brief grace period, retirees should not assume that clarity will arrive before then. The absence of a comprehensive framework aligning contributions, growth, withdrawals, and estate treatment means retirees could face years of uncertainty.
In the short term, retirees should confirm their tax residency status, review double taxation agreements, and consult cross-border tax professionals to evaluate options for restructuring or deferral. Those approaching permanent residence should consider carefully whether the fiscal benefit still outweighs the emerging tax risk.
Looking Forward: Fairness, Consistency, and Confidence
Every change in tax policy shows what a government values most. The idea behind removing the foreign pension exemption might be to make the system fairer, but fairness works both ways.
South Africans who save through local pension funds get clear benefits, such as tax deductions when they contribute, tax-free growth while their money is invested, and protection from estate duty when they pass away. Foreign pensioners never had access to any of those advantages.
There’s also a question of trust. Retirees and investors want to live in a place where the financial rules are stable and predictable. Many of the people South Africa hopes to attract are exactly the kind who plan decades ahead and are quick to move if policies start shifting unpredictably. When they see a proposal like this, they may begin to doubt South Africa’s reliability and look to other destinations, such as Greece, Portugal, Mauritius, or Thailand, where the tax systems are designed to attract, rather than discourage, foreign retirees.
Conclusion: A Balancing Act in an Age of Mobility
John and Marisol’s story is far from unique. For every retiree quietly spending sterling or euros in South Africa, this proposal has introduced doubt into what was once an acceptable equation.
Treasury’s 2000 memorandum warned of precisely this, that taxing foreign pensions without a coherent framework would discourage retirees, create administrative complexity, and yield little sustainable revenue. Two decades on, those concerns still hold.
If the goal is alignment, then the solution likely lies in equality, creating a consistent framework for local and foreign pensions across their entire lifecycle from contribution, to withdrawal and inheritance.
Written by Kyle Noel Glover, Marketing Lead
