Living annuities, not to be confused with retirement annuities (RAs – see “Retirement funds”, below), are used as a post-retirement investment vehicle, and you would typically transfer funds from an RA, pension, provident or preservation fund to a living annuity. These investments are regulated by the Financial Services Board and the Long Term Insurance Act.
Living annuities are an alternative to traditional annuities. With a traditional annuity, a life assurer guarantees you a fixed pension for life. With a living annuity the risk of your capital being sufficient to provide you with an income for life lies with you, because you must choose the underlying investment.
As with retirement funds, you cannot cede a living annuity as security and it does not necessarily form part of your estate when you die. You can nominate a beneficiary.
This type of investment has its limitations, Gerrit Viljoen says. You cannot make any further monthly contributions, you cannot access your funds in the form of a lump sum, and each year you must draw down income at a rate between 2.5 and 17.5 percent of your capital investment. You can only amend the percentage income you draw down once a year on the anniversary of the investment.
The income you draw down is subject to normal income tax rates.
It is important to carefully calculate your drawdown rate: if the income level you select is too high, your income may not be sustainable over the length of your retirement.