Living annuity fund switching: When should you review your investment choice?

A living annuity is a flexible, long-term retirement product that lets you draw an income during retirement while your remaining capital stays invested in the market. Your fund choices can affect several aspects of your retirement, including your capital’s growth potential and sustainability, as well as your long-term outcomes. Switching funds may be appropriate, but it should be managed carefully and never be driven by emotion. In this article, we take a closer look at different fund types, what they mean, and when you may want to review and switch your living annuity funds. 

What is a living annuity and what is fund switching? 

A living annuity is a flexible retirement product that lets you invest your retirement savings in the market and draw an income from your capital. It is funded by capital transferred from your retirement savings when you retire. In South Africa, the current retirement age starts at 55. You can choose both the income you draw from your living annuity and how your capital is invested. The annual drawdown rate can range from 2.5% to 17.5%.  

This rate can be amended each year on the policy anniversary, the date your living annuity was implemented. Fund selection means choosing the underlying funds in which your capital is invested. In other words, these are the funds you select within the living annuity “wrapper”. Each fund has its own risk level, asset allocation and investment objectives. Switching funds means changing the underlying funds within the living annuity “wrapper” while keeping the annuity itself unchanged. 

Understanding fund types  

An investment fund pools money from several investors and invests it according to a set strategy. An investor buys an interest in a portfolio of underlying investments, rather than buying and managing each share. Investors then share in the investment fund’s gains, losses, income, fees and expenses in proportion to their investment. 

A single fund can provide exposure to several companies, industries, asset classes, or countries. This makes it easier for investors to build a diversified portfolio. However, the term “fund” covers a broad range of investments, and understanding the terminology can help investors compare the options more effectively.   

Keep in mind that an investment product and an investment fund are not necessarily the same thing. A retirement annuity, preservation fund, or living annuity is the product through which money is invested, while the underlying fund determines how the money is invested. An investor may be able to select from several underlying funds, each with a different level of risk, asset allocations, and investment objectives.   

What are index-tracking funds?   

An index-tracking fund aims to replicate or closely mimic the performance of a selected market index. Rather than relying on a portfolio manager to select securities based on forecasts or individual views, the fund invests in line with the composition and rules of its benchmark. For example, an equity index fund may hold the companies in a particular share-market index in proportions that mirror the index. When the index changes, the fund adjusts accordingly.   

These funds are sometimes called passive funds, but this is an oversimplification of how they operate. Decisions still need to be made about which index to follow, how the fund will track it, how often it will rebalance, and how costs and trading will be managed. An index fund may be structured as either a unit trust or an ETF. 

What are actively managed funds?   

Unlike an index-tracking fund, an actively managed fund gives the portfolio manager discretion over which investments to buy, hold or sell. The manager may seek to outperform a benchmark, manage risk differently from the market, or meet a specific capital growth objective. They research investments and adjust the portfolio as market conditions and investment views change. This additional research, decision-making, and trading may mean higher fees for investors than an index-tracking strategy does. 

What are balanced funds?  

A balanced fund invests in a range of asset classes, which may include equities, bonds, property, cash and offshore investments. In South Africa, these funds are also commonly referred to as multi-asset funds. They bring together assets with different roles in a single portfolio: equities and property may support long-term capital growth. At the same time, bonds and cash may provide income, liquidity and relative stability. Offshore assets can add exposure to different currencies, industries and economies. 

What are equity funds?  

An equity fund invests primarily in shares of listed companies. These funds are generally intended to provide long-term capital growth and may offer a better chance of producing inflation-beating returns over time. Equity funds may experience significant declines over shorter periods. As such, they are generally best for investors with longer time horizons and the ability to tolerate market volatility. 

What are bond and fixed income funds?   

Bond funds invest primarily in debt issued by governments, companies and other organisations. Investors effectively lend capital to the issuer in return for interest payments and the expected repayment of the debt. These funds can generate income, diversify a portfolio and offer greater stability than an equity-heavy investment. However, they are not risk-free: their value can be affected by interest-rate movements, inflation expectations and the issuer’s ability to meet its obligations. 

What are money market funds?  

Money market funds invest in short-term, interest-bearing instruments and generally aim to offer liquidity, income, and a high degree of capital stability. They may be suitable for short-term investment needs or as the defensive part of a portfolio. Their returns are likely to be lower than the long-term returns targeted by growth-oriented funds, and they may struggle to preserve purchasing power over extended periods amid inflation. Although relatively conservative, money market funds should not be assumed to offer the same guarantees as a bank deposit. 

What are property funds?   

Property, or real estate, funds provide exposure to property-related investments, often through listed property companies or real estate investment trusts. They may generate rental income, while their value can rise or fall as property markets and economic conditions change. Property can add income and diversification to a portfolio, but listed property funds may still be highly volatile. Their performance can be affected by interest rates, occupancy levels, rental growth, debt costs, and broader property market conditions. 

Why your living annuity fund choice matters 

Fund selection is important because it determines how your capital is invested. Your choices can affect your annuity's potential growth and long-term sustainability. Ideally, you want your capital to grow over time and not run out. Your investment returns should cover your fees, drawdowns and inflation; otherwise, your capital may be depleted quickly. The golden equation can be a useful planning tool:

Drawdown rate + fees + inflation ≤ investment returns.

It is not a guarantee, but it can help you manage your living annuity. 

Asset allocation: The bigger decision behind fund switching 

When selecting a fund, it’s also important to consider its asset allocation, the mix of asset classes it contains. A fund may include equities, real estate, bonds, cash, and offshore funds. Research indicates that asset allocation can play an important role in the potential performance of your living annuity over time. 

Equities are included in a portfolio for long-term capital growth and the potential to outpace inflation. They give investors exposure to companies and economic growth, but can also bring market volatility and greater short-term value fluctuations. For this reason, equities may be better suited to investors with longer time horizons and a higher tolerance for risk.   

Bonds are usually less volatile than equities, but they still come with some risk. They are more conservative, but they may still outperform. Bonds can provide diversification, income and stability within a portfolio. You may find bond values affected by changes in factors such as interest rates, inflation expectations, and the issuer's ability to repay its debt.  

Real estate can provide exposure to real assets and economic activity, while generating income through rentals and distributions. It may contribute to long-term growth in your portfolio. Listed property can be volatile and may be affected by various factors. These are interest rates, economic conditions, occupancy levels and changes in the property market. Real estate can often serve as a good hedge against inflation.  

Cash is considered the most liquid and stable of the asset classes. It won’t experience the same levels of volatility as equities or real estate. You may see cash returns struggling to keep pace with inflation over the long term. This may then reduce purchasing power.  

You may also want to include some offshore exposure in your portfolio to further diversify. Offshore assets offer exposure to a broader range of industries, businesses, currencies and economies outside of South Africa. This may mean greater diversification. Offshore investing may entail additional risks, such as currency fluctuations, shifts in global markets, geopolitical issues, and more. Living annuities are not subject to Regulation 28 of the Pension Funds Act, meaning there are no restrictions on investing either offshore or in equities, depending on the provider. 10X allows for 100% offshore investments.   

When it comes to asset allocation, you would align your choices with your investor profile and long-term financial goals. Your investor profile focuses on your risk profile and your investment timelines. You would also look to consider your income needs.  

At 10X, you can choose from a range of index-based, multi-asset and offshore funds. Each fund has its own mix of equities, real estate, bonds, cash and offshore exposure. Instead of choosing individual assets, you may choose a fund with an existing asset allocation aligned with your particular risk profile and retirement goals. Your fund selection is important, as it may affect the sustainability of your annuity capital over time. You are able to see more about our fund options on our fund page. 

When should you consider switching funds?  

Generally, you should review your fund selection at least once a year, or whenever there is a significant change in your financial circumstances, income requirements or long-term retirement goals. Reviewing your funds doesn’t necessarily mean you need to switch them. The decision should be based on whether your current investments are still suitable for your needs.   There are several situations where switching funds may be worth considering. These include:   

• Changes in your risk profile: Your current funds may no longer reflect your tolerance for investment risk or market volatility.  
• Changes in your income requirements: An increase in your drawdown rate may mean you need to reconsider the balance between growth, stability and liquidity.  
• Consistent underperformance: Your funds may have underperformed relevant benchmarks or comparable investments over an extended period.  
• High investment fees: You may find more cost-effective fund options that offer similar investment exposure.  
• Unsuitable asset allocation: Your current portfolio may no longer provide the diversification or growth potential needed to support your retirement goals.  

Regular reviews can help you identify when a change is necessary and ensure that your living annuity remains aligned with your retirement plan. 

Should you switch funds after poor performance? 

Poor investment performance can make switching funds seem appealing, particularly when your retirement income depends on your invested capital. Short-term market fluctuations are a normal part of investing, and switching funds in response to a temporary decline may not always be the best decision. Before switching, consider the following questions:  

1. Has the fund underperformed over the short or long term?  
2. How has it performed compared to similar funds and relevant benchmarks? 
3. Does the fund still align with your risk profile and investment timeline?  
4. Does the fund remain suitable for your retirement income needs and long-term financial goals?  

Switching after a market decline may mean selling investments at a loss and potentially missing out on a subsequent recovery. However, persistent underperformance or a fund that no longer meets your requirements may justify a change. The important thing is to make an informed decision based on your broader retirement plan rather than short-term market movements. 

Should you switch to reduce risk as you get older? 

As you move through retirement, your risk tolerance, financial circumstances and income requirements may change. You may therefore want to review your fund selection and consider moving towards a more conservative portfolio to reduce volatility and protect your remaining retirement capital.   

But reducing risk doesn’t necessarily mean moving all your capital into conservative investments. Your living annuity may need to provide an income for several decades, meaning continued exposure to growth-oriented assets can still be important. An overly conservative portfolio may struggle to generate returns that keep pace with inflation, fees and your annual drawdowns. The goal is to maintain an appropriate balance between growth and stability.  

Fees and fund switching: What should you compare? 

If the fees you are paying are higher, this may mean fewer returns to reinvest, helping preserve and potentially grow and compound your capital over time. As such, part of reviewing your living annuity should include a review of fees.   

Let’s have a look at an example which can help to show the effect the fees may have on your capital.  We will assume the following information:   

• Starting capital: R2 million  
• Investment period: 25 years 
• Gross annual return: 10% 
• Annual drawdown rate: 4% of the opening value each year 

Scenario 1 - 0.86% Fees: After 25 years, the living annuity would be estimated at around R7 million. The investor would have received around R3.89 million in total income over the period.   

Scenario 2 - 3% Fees: After 25 years, the living annuity would be estimated at around R4.19 million. The investor would have received around R2.92 million in total income over the period.   

A small difference in fees can lead to substantially different investment outcomes at retirement. This example is for illustrative purposes only and real results may vary. You can learn more about fees here.  

It’s important for investors to understand the following terms when reviewing fees:   

• TER (Total Expense Ratio): This is the ongoing expenses within an investment fund, calculated according to the applicable standard. 
• TIC (Total Investment Charge): This refers to the total investment charge, which combines the TER with transaction costs within the fund. 
• EAC (Effective Annual Cost): An annualised estimate of the impact of product, investment management advice, administration fees, and all other applicable charges. 

The EAC as a standardised metric is useful to understand the full cost of holding an investment over time. It was introduced by ASISA in 2015. This metric combines various costs linked to an investment product into a single annual percentage. This may include investment management fees, administration costs, advice fees, penalties, guarantees and the effect of loyalty bonuses. This is helpful because it makes it easier to compare the cost structures of different products and providers.  

Assuming all other factors are equal, a lower EAC generally means more of your money stays invested and may earn returns. A higher EAC may leave less money available to compound over time. Costs shouldn’t be considered in isolation, since other factors matter too.  At 10X, we like to keep our fees low, transparent and easy for investors to understand. To find out more about our living annuity fees, please visit our living annuity page. Fee information is correct as of the 16th of October 2026. 

Final thoughts on living annuity fund switching 

It can be useful to switch living annuity funds to better match your financial circumstances, long-term financial goals, or retirement plan. However, switching should not be driven by emotional decisions or knee-jerk reactions. Review your fund selection annually or after any major changes, considering fees, asset allocation, investment performance, your risk profile, investment timeline, drawdown rate, and income requirements.  

If you haven’t reviewed it this year, now may be a good time to check that it still meets your needs and aligns with your investor profile and long-term retirement plan and goals. Get in touch with 10X for any queries you may have surrounding living annuities and retirement funds.