Living Annuity Questions

What is a Living Annuity?

A living annuity is a retirement savings investment product that converts a lump sum of savings into periodic income payments for retirees (i.e. a pension). Living annuities differ from other annuities in terms of their flexibility in investment choices (the 10X Living Annuity, for example, offers a 100% offshore investment capability), and amount and frequency of income withdrawals

Living Annuity Calculator

For an approximation of the income you can expect to receive at your projected retirement age and according to your current savings, you can make use of our helpful living annuity calculator. As a financial tool that helps you estimate the income you are set to receive, utilising a living annuity calculator can help both with savings planning prior to retirement, and planning your budget for retirement.

What are the rules for Living Annuities?

Living annuities are subject to rules according to Regulation 28 legislation and your product provider. These rules include the minimum and maximum drawdown rates, regulations on investment choices (i.e. how much can be invested locally vs offshore), and tax implications for unscheduled withdrawals. At 10X, we ensure any regulations are presented upfront and transparently to ensure you know exactly what your choices entail.

How does a Living Annuity work in South Africa?

A living annuity is a financial product that pays the holder a regular income from an investment, with the investment being the product of the holder’s pension or provident fund, pension preservation, retirement annuity savings, or a transfer from another living annuity. The holder chooses how often they receive their income, as well as the amount.

Living Annuity rules in South Africa

There are legislative rules to consider when deciding to invest in a living annuity, aimed at protecting your assets and ensuring responsible management of your savings. The minimum and maximum drawdown rates of 2.5% and 17.5% respectively are set by SARS, and must be adhered to when electing your drawdown rate. Unsure of what to select for your drawdown rate? A 10X consultant will be happy to discuss your ideal drawdown rate for your age, savings, and lifestyle needs. 

The minimum retirement age for accessing a living annuity is 55, and annuity payments cannot be made prior to the age of 55 in most cases. You are also not able to combine two living annuities into one fund. You are able to switch from a living annuity to a guaranteed annuity should you decide to do so at a later stage, however, you cannot switch from a guaranteed annuity to a living annuity. You can take out both a living and a guaranteed annuity at one time, or you can purchase a composite annuity (which comprises both living and guaranteed annuities).

How are Living Annuities taxed in South Africa?

Your fund transfer into your living annuity is tax-free. You are also not taxed on the investment return on your annuity – instead, you pay income tax on your annuity withdrawals (also called your drawdowns) according to standard income tax tables in South Africa.

Can I cash out my Living Annuity?

The short answer is no. Once you have entered into your living annuity, you are only able to withdraw funds according to the regulations of the annuity. To withdraw a larger amount from your fund, your only option is to increase your drawdown rate, which has a maximum of 17.5%.

How do Living Annuities withdraw or drawdowns work?

Each year, you are obligated to withdraw from your living annuity investment. This is what is referred to as a “drawdown” – with the percentage of your pension withdrawn being a minimum of 2.5% and a maximum of 17.5% of the annual value of your residual capital upon your policy anniversary date. 

Many South Africans opt to withdraw in line with the “4% rule”. The concept comes from statistical analysis that points to the effectiveness of a constant, non-volatile spending strategy – allowing investors to spend 4% of their initial capital without compromising the integrity of the overall investment. Essentially, this enables your capital to grow annually with inflation, regardless of stock, bond, and inflation gyrations, as long as the mixture of stocks and bonds allows for it. 

You can alter how much you withdraw year-to-year, but you must nominate an amount before your policy anniversary date. This withdrawal of your pension can occur monthly, quarterly, semi-annually, or annually depending on your needs.

What is the drawdown rate for Living Annuities in South Africa?

You are able to choose the drawdown rate of your living annuity fund, with the current regulatory range in South Africa being between 2.5% and 17.5% of your remaining capital upon your policy anniversary date.

What happens to a Living Annuity on death?

After your death, your nominated beneficiaries inherit any residual capital in your annuity. They can choose to receive a lump sum or ongoing annuity payments. If you do not select any beneficiaries, the annuity funds will fall into your estate and be dealt with in accordance with your testamentary wishes.

Retirement savings and emigration

It is important to note that if you plan on emigrating, it may be in your best interest to avoid an annuity altogether. Transferring your retirement funds into an annuity will lock your capital in South Africa, meaning you would have to continue receiving your income in Rand and pay local tax on these withdrawals.

What is the difference between a Pension and a Living Annuity?

A pension is a retirement savings plan usually offered by an employer. Upon retirement, a person must convert their pension into one of either a living annuity or a life (guaranteed) annuity. A living annuity allows a retiree to manage their own retirement savings with adjustable income levels, but the investment itself if subject to market fluctuations, so any particular level of income is not guaranteed.

What is the difference between a Life Annuity and a Living Annuity?

A life or guaranteed annuity offers fixed payments for a predetermined period of time. A living annuity, on the other hand, provides flexible income withdrawals and broader agency over investment choices. With traditional life and guaranteed annuities, payments are set and guaranteed, while living annuities are subject to fluctuations in the market, but allow retirees to handle their own investments and income according to their needs.

Living Annuity vs Life Annuity

The main difference between a living and life annuity is the way that each distributes your retirement income. A living annuity has flexibility, with retirees being able to manage their retirement savings and investment choices, as well as being able to determine their drawdown rate. This allows clients increased agency when it comes to their funds, but also comes with investment risks and savings management responsibilities. 

A life annuity offers a guaranteed income stream that is usually purchased with a lump sum from an insurance company. The annuity provider (rather than the annuitant themselves) undertakes the investment risk and the retiree is guaranteed fixed payments unaffected by market fluctuations.

What is the difference between a Retirement Annuity and a Living Annuity?

Living Annuity vs Retirement Annuity

A retirement annuity is a regulated retirement investment product that allows a person to invest money they want to use for their retirement. Upon retirement, it is converted to a living or a life (guaranteed) annuity. Thus, while both a living annuity and a retirement annuity exist to provide retirees with financial security, they differ from each other in terms of timelines, structure, flexibility, and taxation.

Retirement Annuity

A retirement annuity is a savings vehicle with the purpose of accumulating funds during your working years. Contributions to your retirement annuity are tax-deductible (subject to the legislated limit) – this can serve to lower your taxable income, and therefore your tax bracket. Any investment growth to your retirement annuity is also tax exempt. 

Retirement annuities are a great way to save consistently towards your retirement for those who do not have a company pension fund, and helps young people save towards their retirement by guarding against premature cashing out. The 10X Retirement Annuity offerings have low fees, with no penalties for changing your investment strategy or provider and no other hidden costs. We also implement a progressive fee structure, with low fee incentives based on the size of the investment and no surprise fees when you reach retirement.

Living Annuity

A living annuity is purchased after your working years when you convert your retirement annuity, pension, or provident fund. With a living annuity, retirees can choose to invest their money within the basket of funds offered by their annuity provider. Retirees are able to choose the percentage of their investment that they receive as income, as well as how frequently (on a monthly, quarterly, semi-annual, or annual basis). Living annuities offer flexibility to retirees, who can tailor their investment strategy and income withdrawal percentage and frequency according to their needs.

As with any investment, there are risks involved; as we touched on earlier, the longer the time horizon, the better the chances of your initial investment riding out any unforeseen market drops. Often, longer time horizons allow for a risk reduction, as your investment has the opportunity to grow through inflation and ultimately, offer consistent and predictable returns over a long period of time.

While the money transferred into your living annuity is tax-free and you are not taxed on the investment returns you receive, income withdrawals from a living annuity are subject to income tax, like a salary. You are able to use your retirement fund to invest in a living annuity, as a living annuity can only accept proceeds from a retirement fund or another annuity. To put it simply, a retirement annuity can be thought of as an earlier stage of a living annuity. 

With a 100% history of market outperformance and a highly diversified portfolio, 10X’s funds offer a great choice for retirement and living annuities alike. No matter your life stage, income, and savings goal, 10X has a fund suited to your lifestyle and needs.

Is a Living Annuity a good idea?

A living annuity is a great option for many retirees, for a number of reasons. The greater investment and income flexibility means that you are able to take control of the amount of pension you receive from your retirement funds, and can adjust the rate according to your changing needs. As with any choice, however, there are risks involved. You can read more about those risks here.

What is the disadvantage of a Living Annuity?

Like any form of investment, living annuities come with certain considerations. One such consideration is the longevity and investment risk, as annuity payments are subject to market fluctuations – your investments can gain or lose value depending on the market. To counter this risk, 10X Investments has a highly diversified, robust investment portfolio and boasts a track record of superior long-term returns. 

For example, the 10X Your Future Fund, one of our flagship offerings, has been intentionally designed to deliver broad exposure to a diverse range of international and local asset classes. For investors who are content with a time horizon of five or more years, this fund provides unparalleled annualised returns and consistency. While the risk is higher than some of our alternatives, the return on investment is an undeniably appealing prospect. This risk is linked to the term of your investment; ultimately, the longer the time horizon, the more opportunity there is to ride out any temporary market drops. As the term is five years, this fund falls into the category of a high equity investment portfolio, which maximises returns in the long run but does come with more short-term risk.

To successfully manage risk and client uncertainty, we have ensured that the 10X Your Future Fund has a focus on diversification – this enables improved long-term returns while reducing risk factors. This, combined with strategic asset allocation and our famously low fees, allows our funds to provide investors with consistent long-term outperformance compared to market benchmarks.

Best-performing Living Annuity products in South Africa

10X’s funds experience consistently superior returns, having a 100% track record of market outperformance, and with our robust investment portfolio, you can be sure your savings are in good hands. For a full breakdown of how 10X delivers superior long returns at a fraction of the cost, take a look at this fact sheet. Additionally, with no upfront fees, no advice fees, and no exit fees, 10X Investments’ living annuity is a highly competitive option for South Africans looking to retire comfortably. This is particularly important when we consider that your annuity capital is reduced not only by your drawdown, but also by fees. 

The higher your fees, the lower your drawdown rate will need to be in order to maintain your savings throughout your retirement. At 10X, our clients pay a maximum fee of 0.87%. This low fee reduces further for investment capital amounts exceeding R5m. A low fee margin is a significant factor contributing to the performance of your total funds. Did you know a 1% savings in fees can mean up to 30% more money in retirement?

How do I invest my money with a Living Annuity?

Living annuities are a popular vehicle of retirement investment services, particularly for retirees who prefer to have increased control over the risk and responsibility of securing their income throughout their retirement. While the risk of market volatility is ever-present, the other side of the coin is greater investment and income flexibility that comes with a living annuity. As a living annuity holder, you choose how to invest your own retirement savings, within the basket of investments offered by your provider. 

It is recommended that retirees consult an expert or make use of our living annuity calculator to assess the ideal drawdown rate for annuity payments. While living annuities are often sold and established through linked-investment service providers (LISPs), 10X Investments offers living annuities directly to the public without the LISP middleman and commonly included advisory fees, which ultimately means more money in retirement for our clients.

How does this boost the performance of the money in my Annuity?

By investing your money into growth-oriented assets with 10X, you have the opportunity to generate returns on your savings that beat inflation and deliver further positive returns in the long run, thereby helping to maintain the purchasing power of your annuity income and allowing you to maintain a comfortable lifestyle throughout retirement. 

To add to this, our incredibly low fees contribute to greater returns, as more money ends up back in your pocket. Higher fees eat into your savings, consequently reducing monthly income and hindering the investment's success as a whole. As displayed in the graph below, a 2% reduction in fees can add a surprising number of years to your retirement income. Even marginal differences that may seem negligible can have a large impact on returns and financial flexibility in the long term.

It is important to be mindful of the risks associated with market volatility and investment performance which can affect the value of your annuity and the sustainability of annuity income; careful management of investments and drawdown rates are central to mitigate risks and ensure your savings last you comfortably throughout your lifetime. 

Should you wish to discuss your living annuity, 10X’s certified consultants are here to help. Simply visit our contact page, and a dedicated consultant will be in touch with helpful information to inform your choices for your retirement savings. 

10X Investments is an authorised Financial Services Provider (FSP number 28250). The content herein is provided as general information and is not intended as nor does it constitute tax, legal, investment, or financial advice as defined by the Financial Advisory and Intermediary Services Act, 2002.

The 10X Living Annuity is underwritten by Guardrisk Life Ltd.