These annuities pay you out on the same basis as a guaranteed annuity, but the difference is they are riskrated individually, so a retiree in poor health could receive a bigger annuity in retirement than someone of the same age who is in good health (
“Bear in mind that if you choose a life or guaranteed annuity, you are going to receive a lower monthly income than you would receive on an Illa,” warns Dolya.
The biggest benefit of a life annuity is that the life assurance company bears all the risk and you are guaranteed an income until you die.
enhanced annuities have been available in South Africa for at least six years, only one life assurer has offered them to date: Paramount Life. However, a new company in the market, Just Retirement, which is a wholly owned subsidiary of Just Retirement, based in the UK, recently launched in South Africa offering only enhanced annuities.
Chief executive Deane Moore says an enhanced annuity will typically pay a retiree between 10% and 30% more in retirement than a standard guaranteed or life annuity, depending on the client’s risk assessment. Just Retirement has a standard questionnaire that asks your financial adviser to identify whether you suffer from a heart condition, or illness such as diabetes, or if you have suffered a stroke. This information is then used to calculate your individual life expectancy, and your annuity payout is determined based on the life expectancy calculation. In other words, the unhealthier you are, the bigger your monthly payment will be. Moore says if you live beyond the guaranteed period, the policy will continue to pay out until you die.
Just Retirement has the following three products in its portfolio:
An inflation-linked guaranteed annuity, which increases in line with inflation each year.
A guaranteed annuity that increases by a fixed percentage each year, up to a maximum of 10%.
A guaranteed annuity that pays you a fixed amount each month throughout your retirement. Note that this option carries an inflation risk because, as the years go by, the amount of money you are receiving each month will be worth less in terms of buying power.
An enhanced annuity makes sense if you are in poor health when you retire and do not expect to live longer than 10 to 15 years. The inflation-linked guaranteed annuity product makes the most sense because it will keep pace with inflation each year.
As your health is rated in terms of the amount you would receive as an income, a person in poor health would receive a higher income with an enhanced annuity than an ordinary guaranteed annuity. It would be worth it, however, to get comparative quotes to ensure you are receiving the best possible income.
A person in poor health with a reasonable amount of retirement funding (in excess of R1.5 million) could also consider a living annuity, as any funds still remaining upon death would be left to one’s beneficiaries. Be aware that a living annuity also carries the risk of making poor investment choices, and the risk of drawing down too much money and running out of funds prematurely.