Estate Living Magazine #liveyourbestlife - Issue 46 December 2019 | Page 29

P R O P E R T Y
3. Interest rates – the higher the prevailing interest rates, the
higher your monthly pension is likely to be.
4. Your choice of annuity – depending on the exact product
and benefits you opt for, the payout will vary. The more
insurance you require, the lower your annuity will be.
Pros You’ll receive a guaranteed monthly pension for as long
&
I N V E S T M E N T
Making your decision
It’s not an easy decision to make. On the one hand you have a
guaranteed pension for life, but it does not transfer to your heirs.
On the other hand you have a more flexible investment that passes
over to your beneficiaries, but you stand the risk of running out of
money.
as you live.
Cons With this product your money dies with you and no
money passes on to your heirs. 
A living annuity
The living annuity is an investment product. You invest your
money and can withdraw a monthly (or annual) pension that
suits your needs. You do, however, need to work within the
confines of the prevailing regulations.
Pros
You have far greater flexibility in terms of investment
choices, and can decide on the monthly income required.
Should you have money left in the fund after your death, this
will be passed on to your nominated beneficiaries. Overall you
have more control of your investment.
Cons
The risk of a living annuity is that you may run out of
funds and be left with no pension. This could be due to poor
performance in the markets, withdrawing too much for your
living expenses, or simply by living longer than expected.
Some points to note
•
•
•
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your health, age and life expectancy
existing investments
current income streams
the needs of your dependants.
You should also consider where you plan to retire, how much you
need to live on, and – more subjectively – your investment outlook
for the country.
If you plan to retire young, you should consider a low-cost living
annuity as your age will be factored against you in a guaranteed
annuity. If you’re older, though, say in your seventies, the
guaranteed annuity may be a better option as your life expectancy
is less, and your monthly annuity will likely be more. You may also
need your money sooner rather than later due to ill health or other
circumstances, in which case a living annuity with a flexible draw-
down rate may suit you better.
There is no specific formula to apply when making this decision,
so it’s always best to discuss it with a trusted financial advisor. As
a final thought, you can switch a living annuity into a guaranteed
annuity at a later stage if you change your mind – but you can’t do
the reverse.
E
• Living annuity investors are currently not subject to
Regulation 28 of the Pension Funds Act, which means that
there are no prescribed investment limitations as in the
case of a retirement annuity investment.
• You must draw a pension from your investment every year;
at least 2.5% but no more than 17.5% of the annual value
at the policy anniversary date. The annual withdrawal is
unfortunately not an ad hoc amount, as you need to specify
the draw-down rate prior to the policy anniversary date.
• You can switch product providers, and are not bound to
one annuity. Provided that one annuity has a minimum
income of at least R150,000 per year, you can purchase up
to four annuities with the proceeds of your pension fund.
• Your nominated beneficiaries inherit any remaining capital
after your death and can choose to receive a lump sum, an
ongoing annuity or an accelerated annuity (paying out over
five years). This is not subject to estate duty, and is taxed
either as a lump sum, or per the individual income tax tables.
You should consider a host of factors specific to you:
Brendan Dale