The Best Living Annuity Options in South Africa: A Complete Guide

Living annuities are an essential component of retirement planning in South Africa, offering retirees the flexibility to control their income withdrawals while keeping their investments growing. Unlike life annuities, which provide a fixed income for life, living annuities allow individuals to adjust their income withdrawals based on their financial needs and investment performance. However, choosing the right living annuity requires careful consideration of factors such as investment returns, fees, and sustainability.

In this comprehensive guide, we will explore the best living annuity options in South Africa, compare their benefits and risks, and provide valuable insights on how to maximise your retirement income. Whether you are looking for high-return investment opportunities or a secure retirement income strategy, this guide will equip you with the knowledge needed to make an informed decision.

Best Living Annuities in South Africa (An old couple reviewing finances)

1. Understanding Living Annuities

What is a Living Annuity?

A living annuity is a retirement investment product that allows retirees to draw a regular income from their invested capital while the remaining funds continue to grow through market-linked investments. Unlike guaranteed life annuities, a living annuity does not provide a fixed income but instead allows retirees to decide how much they withdraw, typically between 2.5% and 17.5% of the fund value per year.

Key Features of Living Annuities

  • Flexibility: Adjust income withdrawals annually within the legal limits.
  • Investment Control: Choose from various asset classes such as equities, bonds, and cash.
  • Inheritance Benefits: Remaining funds can be transferred to beneficiaries upon death.
  • Market Exposure: Returns depend on market performance and investment selection.

2. How Living Annuities Work in South Africa

When an individual retires from a pension, provident, preservation, or retirement annuity fund, they must use at least two-thirds of their accumulated savings to purchase an annuity. The living annuity offers more control over how these funds are invested compared to a life annuity.

Income Withdrawal Rates

Retirees can withdraw between 2.5% and 17.5% of their annuity fund per year, with the ability to adjust this rate once a year. However, withdrawing too much too soon can deplete funds rapidly, leading to financial instability later in life.

Tax Implications

  • Withdrawals from a living annuity are taxed as income.
  • No capital gains tax (CGT) or dividends withholding tax on the underlying investments.
  • Beneficiaries do not pay estate duty on inherited annuity funds.
Best Living Annuities in South Africa (Elderly couple traveling)

3. Top Living Annuity Providers in South Africa

Several financial institutions offer living annuity solutions with varying fee structures, investment options, and customer support. Below are some of the top living annuity providers in South Africa:

1. Everest Wealth Amethyst Living Annuity

  • Annual Return: 12.12%
  • Minimum Investment: R100,000
  • Features: Inflation protection, diverse investment options, tax efficiency

2. Allan Gray Living Annuity

  • Annual Return: Varies based on selected investment funds
  • Minimum Investment: R50,000
  • Features: Flexible investment options, transparent fee structure

3. Coronation Capital Plus Annuity

  • Annual Return: Market-dependent
  • Minimum Investment: R100,000
  • Features: Actively managed fund, balanced income and growth strategy

4. Ninety One Living Annuity

  • Annual Return: Linked to investment performance
  • Minimum Investment: R50,000
  • Features: Range of balanced and aggressive investment portfolios

5. Sygnia Skeleton Balanced 70 Living Annuity

  • Annual Return: Market-linked
  • Minimum Investment: R50,000
  • Features: Low-cost structure, passive index fund approach

4. Choosing the Right Living Annuity

Factors to Consider

  • Investment Growth Potential: Ensure the annuity can generate inflation-beating returns.
  • Fees and Charges: Compare annual admin fees, investment management fees, and adviser fees.
  • Withdrawal Strategy: Withdraw sustainably to avoid depleting funds too quickly.
  • Diversification: Choose a balanced mix of equities, bonds, and cash.
  • Financial Adviser Guidance: Seek expert financial advice to tailor an annuity plan to personal needs.

5. Risks and Challenges of Living Annuities

While living annuities offer flexibility, they also come with certain risks:

1. Market Risk

  • Since returns are market-linked, a market downturn can negatively impact investments.

2. Longevity Risk

  • If withdrawal rates are too high, retirees may outlive their savings.

3. Inflation Risk

  • If investment returns do not keep up with inflation, purchasing power decreases.

4. Management Complexity

  • Requires active investment monitoring and financial planning.
Best Living Annuities in South Africa (Elderly couple playing with grandchildren)

6. FAQs: Answering Common Questions

Here are some frequently asked questions about living annuities in South Africa:

1. What is the minimum investment required for a living annuity?

Most providers require a minimum of R50,000 to R100,000 to start a living annuity.

2. Can I withdraw my full living annuity amount?

No, retirees can only withdraw between 2.5% and 17.5% per year, as per South African regulations.

3. Are withdrawals from a living annuity taxed?

Yes, withdrawals are taxed as income according to the retiree’s tax bracket.

4. What happens to my living annuity when I pass away?

Remaining funds are transferred to nominated beneficiaries, without estate duty.

5. Can I switch investments within my living annuity?

Yes, most providers allow portfolio adjustments to align with market conditions.

6. How do I choose the best withdrawal rate?

A 4% to 5% withdrawal rate is generally recommended for long-term sustainability.

7. What are the biggest risks of a living annuity?

Market fluctuations, inflation, and depleting funds too quickly are the biggest risks.

8. Is a living annuity better than a guaranteed life annuity?

It depends on risk tolerance—a living annuity offers flexibility, while a life annuity guarantees income for life.

Notice and Disclaimer

This article is provided for general information and educational purposes only and does not constitute financial advice as defined by the Financial Advisory and Intermediary Services Act, 2002 (FAIS Act). The content should not be relied upon as a basis for making any investment decisions. 

Please consult with a licensed financial advisor to determine if such investments are appropriate for your individual circumstances. 

Everest Wealth Management (Pty) Ltd is an authorised Financial Services Provider (FSP 795) and a registered credit provider NCRCP 21504.

Tagged

Contact me

Take the first step toward a secure future. Act now and start building the retirement you deserve. Speak to your financial advisor or contact Everest Wealth.

Onyx Income +
Onyx Income + Brochure
Key information document

Investing in alternative assets carries risks, including market volatility and liquidity constraints. We recommend discussing your risk tolerance with one of our experienced financial advisors to ensure this investment aligns with your financial goals.