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Living Annuities in South Africa - Key Info

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During their working lives many people save up, so that on retirement they can purchase an annuity, which is a stream of regular payments. The stream of payments is usually monthly; but could be quarterly, biannually or annually - legislation requires that at least one payment a year occurs. With conventional annuities that stream of payments would be guaranteed until death, and there would be a predetermined contractual agreement on how annuity increases would be calculated.

Living annuities, on the other hand, do not guarantee ongoing payments until the annuitant's death, and you could run out of money before you die. Living annuities each have an investment balance which reduces as annuity payments are made from the account, increases with positive investment returns, decreases with negative investment returns, and also decreases when fees are paid. With living annuities, all risks lie with the annuitant.

Withdrawal rates

Living annuitants are restricted as to what percentage of their investment account balance they may withdraw - they may not withdraw less than 2.5% p.a. or more than 17.5% p.a. Withdrawing too low amounts isn't an issue, but annuitants withdrawing too much has led to annuitants running out of retirement funding; and has contributed to giving living annuities a bad name.

The ability to only withdrawal 2.5% p.a. is attractive to those who want minimal income at first; whilst the ability to draw up to 17.5% is attractive to those who want to withdraw as much as possible upfront.

NB: If your withdrawal rate is greater than the rate of return being earned by your investment account, then your investment balance will start reducing. In fact, even worse, if your withdrawal rate is greater than the real rate of return on your investment balance, then the purchasing power of your investment balance reduces - a rule of thumb is to avoid withdrawing any amount greater than the rate of return on the portfolio less the rate of inflation.


Bear in mind that taxation rules can be changed at any time; the situation at the time of writing is described here).

Annuitants pay tax on their withdrawals at their marginal rate of taxation.

The investment return on the investment balance is not subject to tax, e.g.:

Ongoing Responsibilities

Whilst with conventional annuities the annuitant has no decisions he/she must make after purchasing the annuity, with living annuities the annuitant remains responsible for:

As annuitants age, they sometimes lose their ability to make the above decisions competently, another disadvantage of living annuities.

The fact that there is still decision making to be done is looked upon in a positive light by some, who like to feel in control of their investment.

Investment Returns

As mentioned earlier, a living annuitant's investment balance increases with good investment returns (& vice versa), making it crucial to get the asset allocation pitched correctly for a client's risk profile and other circumstances, as well as the manager selection. Generally speaking, if there is doubt about which is the correct manager to choose, there are now several options in the market for low cost index funds is a fair option to go for.

Death benefits

With a living annuity the death benefit is simply the balance of the investment account. This is a feature which annuitants often find attractive relative to conventional annuities, where a death benefit is manufactured via the guarantee period.

Living annuities which are part of a retirement fund are subject to the Pension Funds Act, and Section 37C of the Act requires the trustees of the fund to make sure that dependants are taken care of before any non-dependant individuals who may have been nominated by the pensioner.

For living annuities which are no longer part of a retirement fund; unlike with pre-retirement savings within retirement funds where the trustees decide on how the death benefits should be distributed; with these living annuities the annuitants has the final say. The death benefit from the living annuity may be transferred to another living annuity, taken in cash or a combination of the two. If an annuitant does not nominate a beneficiary, then the investment balance will be transferred to his/her estate; whereas if you have it does not form part of the estate, instead being transferred directly to the nominee. Therefore executor's fees can be saved (unless you don't nominate a beneficiary).

Any lump sum death benefits paid to a beneficiary are taxed at a certain scale.

Purchase of living Annuity at Retirement

A living annuity may be purchased at retirement by transferring the proceeds of a pension, preservation or provident fund, into it.


There will be an investment platform through which you invest, and usually platform fees apply. Note that asset managers sometimes don't charge a platform fee if you invest in one of their portfolios (e.g. Sygnia).

The investment manager will charge a fee for the asset management services provided. There will also be various costs which accrue within the portfolio - e.g. brokerage, banking, securities transfer tax, custodian, audit and trustee fes.

You investment advisor fees may charge an initial fee up to a maximum of 1.71% (including VAT), as well are regular fees up to 1.14% p.a.

Payment fees may be charged whenever a payment is made.


Question: May I withdraw nothing from my living annuity until I need the money in a few years time?
Answer: You must make at least one withdrawal a year, and that withdrawal must be at least 2.5% of your portfolio value.

Question: May I convert my living annuity to a conventional annuity?
Answer: Yes, usually you can. However, note that you cannot convert a conventional annuity back into a living annuity.

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