Living Annuity FAQs

What is a Living Annuity?

A Living Annuity is a post-retirement investment product that allows you to withdraw between 2.5% and 17.5% of your invested capital annually while keeping the remaining funds invested. You can also allocate up to 100% offshore or diversify between local and global markets.

Is a Living Annuity Inheritable?

Yes, upon death, your Living Annuity balance is transferred to your beneficiaries, who can choose to receive it as a lump sum or continue withdrawals.

Is a Living Annuity a Good Idea?

A Living Annuity is ideal if you want flexibility, inheritance benefits, and investment control. However, you must carefully manage withdrawals and market risks.

Can I Move My Living Annuity Offshore?

Yes, you can allocate your Living Annuity investments offshore, benefiting from international diversification and potential currency hedging.

What are the Rules for a Living Annuity?

Living annuities are subject to several key rules:

1. Investment Options: You can choose how to invest your funds, including various asset classes like stocks and bonds.
2. Withdrawal Rates: You must withdraw a minimum of 2.5% to 17.5% of your investment annually, depending on your age.
3. No Guaranteed Income: Unlike traditional annuities, there is no fixed income; withdrawals depend on investment performance.
4. Taxation: Withdrawals are subject to income tax, but investment growth is tax-deferred.
5. Beneficiaries: You can designate beneficiaries to inherit any remaining funds upon your death.
6. For personalized advice, consult a financial advisor.

How Does a Living Annuity Compare to Other Retirement Income Options?

Compared to Life Annuities, a Living Annuity offers:

• More flexibility in withdrawals and investments
• Inheritance benefits, as funds go to beneficiaries
• Market risk exposure, meaning returns are not guaranteed

Choosing between a Living Annuity, Life Annuity, or Pension Fund depends on your income needs, risk tolerance, and long-term financial goals.

What Happens If I Become a Non-Resident for Tax Purposes?

If you emigrate and become a non-resident, your Living Annuity income will still be subject to South African tax, but you may apply for tax relief depending on your new tax residency.

Do Living Annuities Protect Against Inflation?

A well-managed Living Annuity with a balanced investment portfolio can help protect against inflation, ensuring your income retains purchasing power over time.

Can I Change My Living Annuity Withdrawal Rate?

Yes, you can adjust your drawdown rate annually, within the 2.5% – 17.5% range, depending on your income needs and investment performance.

What Happens If My Living Annuity Runs Out?

If your Living Annuity depletes due to high withdrawals or poor performance, there will be no further income payments. This is why sustainable withdrawal rates and strong investment strategies are essential.

How Do I Choose the Right Living Annuity Provider?

Consider these factors when selecting a Living Annuity provider:

• Investment options: Ensure access to a diversified portfolio
• Fees and costs: Compare administration and investment fees
• Flexibility: Ability to adjust withdrawals (drawdowns)
• Performance history: Look at long-term growth trends

Does a Living Annuity Have an Expiry Date?

No, a Living Annuity does not expire. It lasts as long as there is capital in the investment. However, if withdrawals exceed growth, funds may deplete over time.

Can I Transfer My Living Annuity to Another Provider?

Yes, you can transfer your Living Annuity to another provider if you find a better investment option or lower fees. This ensures flexibility and the ability to optimize your retirement income.

How Does a Living Annuity Work in South Africa?

After retiring, you transfer your retirement savings (from a Pension Fund, Provident Fund, or Retirement Annuity) into a Living Annuity. You then:

• Choose a drawdown rate (2.5% to 17.5%).
• Select investment options, including local and offshore funds.
• Withdraw an income, while keeping your capital invested for growth.

How are Living Annuities Taxed in South Africa?

Living Annuities in South Africa are taxed as income, meaning any withdrawals you make are subject to PAYE (Pay-As-You-Earn) tax based on your personal income tax bracket.

Key Tax Considerations:

✔ Withdrawals are taxed at your marginal income tax rate as per SARS tax tables.
✔ No tax on capital growth, interest, or dividends within the Living Annuity.
✔ No capital gains tax (CGT) on investment returns.
✔ No estate duty—your remaining capital goes to your beneficiaries tax-free.
✔ Beneficiaries may pay tax if they take a lump sum withdrawal.

How Tax Works on Withdrawals:

• If you withdraw a small amount, your tax rate will be lower.
• If you withdraw a large amount, it could push you into a higher tax bracket.

To minimize tax, consider structuring withdrawals to keep your total taxable income within a lower tax bracket.

What is the Difference Between a Pension and a Living Annuity?

• Pension Annuity: Pays a fixed, guaranteed income for life but has no flexibility.
• Living Annuity: Lets you control your withdrawals and investments, but your income is subject to market fluctuations.

What is the Difference Between a Life Annuity and a Living Annuity?

• Life Annuity: Pays a guaranteed income for life, but you lose access to your capital.
• Living Annuity: Offers flexibility and inheritance benefits, but your funds can deplete if mismanaged.

What is the Difference Between a Retirement Annuity and a Living Annuity?

• A Retirement Annuity (RA) is used to save for retirement and cannot be accessed before age 55.
• A Living Annuity is what you convert your RA into when you retire, allowing you to withdraw income.

How do Living Annuities Withdrawals (drawdowns) Work?

• You select a drawdown rate (adjustable once per year).
• Withdrawals are paid monthly, quarterly, biannually, or annually.
• If your drawdown rate is too high, you risk depleting your capital too soon.

What is the Drawdown Rate for Living Annuities in South Africa?

• The drawdown rate is between 2.5% and 17.5% per year.
• Choosing a lower rate allows more capital growth, while a higher rate may lead to faster depletion.

In Short What is a Living Annuities?

• Withdrawals must be between 2.5% and 17.5% of your investment annually.
• Your withdrawals are taxed as income.
• No estate duty applies, but your beneficiaries may pay tax on withdrawals.
• You cannot make lump sum withdrawals, except under specific conditions.

How are Living Annuities Taxed in South Africa?

• Withdrawals are taxed as income, based on your personal tax bracket.
• No tax on capital growth, interest, or dividends within the annuity.
• No estate duty, but beneficiaries may pay tax when withdrawing funds.

How can I Boost the Performance of my Living Annuity?

• Reduce withdrawals to allow more capital growth.
• Invest offshore to hedge against local currency risks.
• Diversify your portfolio to balance risk and returns.

How do I Invest my Money with a Living Annuity?

• Choose an investment provider and asset allocation.
• Decide on a drawdown rate that balances income and growth.
• Diversify between equities, bonds, and offshore funds to reduce risk.

What is the Disadvantage of a Living Annuity?

• Market risk—your investments may underperform.
• No guaranteed income—funds may run out if mismanaged.
• Requires financial knowledge—poor investment choices can affect retirement security.

How does Emigration affect my Living Annuity?

• If you emigrate, you cannot withdraw your Living Annuity as a lump sum.
• Your withdrawals will continue, and payments must be made into a South African bank account.

What Happens to a Living Annuity on Death?

• The remaining funds go to your nominated beneficiaries.
• Beneficiaries can continue the annuity or take a lump sum payout (subject to tax).
• If no beneficiaries are named, the annuity is paid into your estate.

How does Offshore Investing work within a Living Annuity?

• You can allocate up to 100% offshore, depending on your investment provider.
• Offshore investments provide global diversification and currency hedging benefits.

Can I Cash Out my Living Annuity?

• No, you cannot withdraw the full amount in cash.
• If your Living Annuity drops below R125,000, you can withdraw it as a lump sum.