The budget in February brought some very welcome news for South African investors. The limit on how much you could invest offshore in a pension fund or retirement annuity was increased from 30% to 45%.

This is a substantial move, and has very positive implications.

The JSE is only 0.5% of the FTSE All World Index. Yet, South Africans saving for retirement have had to keep at least 65% of their assets at home. This is a massive discrepancy, and has meant that investors have not been able to take advantage of all of the opportunities available offshore.

With a global allowance of 45%, South African investors can now build much more diversified portfolios. 

This also means that saving in retirement annuities (RAs) becomes far more attractive, as they are much less restrictive than they were. Since they carry significant tax benefits, they can be a very valuable part of a financial plan. Whatever money you contribute to an RA is deducted from your taxable income and so reduces your tax bill. You also don’t pay any tax on income or dividends on investments in an RA.

However, this does not necessarily mean that everyone should be rushing to get to their full offshore allowance as quickly as possible. There are a number of questions that need to be considered on an individual basis.

First of all, it is important to consider your investment horizon. If you are planning to retire many years in the future, then you may well want to maximise your international exposure. This is because it will reduce your risk over time, and increase your potential sources of return.

However, it is important to bear in mind that the rand is a volatile currency. In the short term, this can have real implications. If you are only investing one year into the future, it doesn’t help if you make 10% on US equities, but you lose 20% on the rand. So you need to measure your risk, depending on your time horizon.

You also need to know whether you will be incurring any tax by moving investments. If you will, you need to calculate whether that cost is justified.

At the moment, South African assets are also offering good value and performing well. So right now might not be the best time to take all of your global exposure in one go. It may be best to do so through a staggered approach.

Finally, you need to consider your future plans. If you have any intention of emigrating, having money in any retirement savings vehicle can cause complications. Last year a law was passed that anyone leaving the country could only withdraw their retirement savings after no longer being tax resident in South Africa for three years.

This is a long time to wait for your money. There are also ongoing debates about when you would pay tax on this withdrawal, whether it would include interest, and what would happen if you decided to come back again before the three years are up. These need to be cleared up.

With so much to think about, it is important that you get good advice. Everyone’s situation is different, and should be considered based on their goals, their current savings, and how much risk they are willing to take.