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Wondering how to make your life annuity vs living annuity rock? Read this.

By June 10, 2019September 4th, 2023Retirement income

Wondering how to make your life annuity vs living annuity rock? Read this.

June 10, 2019


Many people are confused about the difference between a life annuity and a living annuity. By the time you reach retirement age, it’s important to understand the different retirement options. In this article we will discuss the differences between a life annuity (also known as a guaranteed annuity) and a living annuity so you can plan effectively and ensure a retirement that you can look forward to.


Living annuity vs life annuity


What is an annuity?

As a member of a pension, pension preservation or RA fund, you must use at least two-thirds of your fund proceeds at retirement to purchase an annuity if your fund value is more than R247 500. An annuity is a retirement financial product that pays you a regular income. There are two types of annuities that can provide you with an income from your retirement savings – the life annuity and the living annuity.


Once you elect to retire from a Retirement annuity, this product ceases to exist, and your two thirds is then invested into either the living annuity or the life annuity.


What is a life/guaranteed annuity?

A life annuity secures you a pre-determined amount of income, usually paid on a monthly basis for the rest of your life. There are different types of life annuities. Some provide an income that increases with inflation, and others just pay a level income, while others may provide an increased income over time depending on investment returns. In today’s economy, with rising inflation, many people choose to consider an inflation-linked life annuity, which provides an income that keeps pace with inflation.


The downside of a life annuity is that, while your income is guaranteed for the rest of your life, your heirs won’t be able to inherit what is left on your death – unless the contract includes a guaranteed period or a spouse benefit. You also often don’t have any flexibility to change your income or move to another annuity or insurance provider once you have made your purchase.


What is a living annuity?

A living annuity is an investment product that allows you to decide how to invest your savings within the investments offered by your product provider. You have the option to choose your income every year, depending on regulatory limits and where your money is invested. This gives you more flexibility and the ability to draw a higher income if you need to.


You also have the flexibility to change insurance providers or purchase a life annuity at any time, if you decide to do so. On your death, all your remaining capital will pass to your heirs. The risk of this type of investment is that your capital might not last your entire life. You also take the risk that your insurers’ investment returns might be poor and that your future income fails to keep up with inflation.


Taking your retirement annuity abroad

As a result of a change to tax legislation that came into effect in 2008, South African expats living abroad who have financially emigrated from South Africa can access certain financial investments like a retirement annuity – even before they turn 55!


Accessing funds in your retirement annuity due to financial emigration is only possible if you have not yet opted to retire from the fund.


In such a case, as part of your foreign capital allowance, the full lumpsum is remittable abroad, regardsless of your age.


The post-tax lump sum (if any) will be remittable as part of your foreign capital allowance if you choose to retire from your retirement annuity (invest in a living annuity or life annuity).


The monthly income from the living annuity or life annuity will also be remittable (after tax), although the underlying capital will need to remain in South Africa.


For more information about how to access your South African retirement annuity while living abroad contact us today.


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