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Will you be comfortable and financially secure in retirement?

People are living a lot longer nowadays, and this means retirement can easily be 20 years or longer.

When they retire, most members use their retirement savings to buy an annuity. Annuity income (or pension) is a regular payment or income you receive during your retirement years.

Choose the right annuity in retirement

There are different types of annuities, and when you purchase a retirement income, you need to carefully consider how to invest your retirement savings so that you and your loved ones have a sufficient income when you no longer receive a salary.

A successful retirement means that you can maintain your standard of living, without financial assistance, and choosing the right annuity is a critical decision you need to make as you approach retirement.

What options do you have?


The type of retirement fund that you are invested in before retirement determines your options when you retire.

An old man drive his restored VW Beetle with the top down through a wooded are, look back at the camera holding his right hand in a thumbs-up sign.

With pension funds, pension preservation funds and retirement annuity funds, you can:

Take at most one-third in cash at retirement and use the rest to buy an annuity that will pay you a monthly income during retirement.

A view of an older couple from behind, sitting on a bench looking out at the waves gently crashing on the shore and people walking on the beach.

With provident funds and provident preservation funds you can:

Take up to the full amount in cash at retirement or use the amount that you don’t take in cash to buy an annuity that will pay you a monthly income during retirement.

Any amount you take in cash at retirement will be taxed according to the retirement fund lump sum tax table, and your income from your chosen annuity will be taxed as normal income.

Choose an annuity

When deciding on the type of annuity, you have to consider how much flexibility and income certainty you need. Your risk appetite, health and other sources of income are also important factors to consider.

Broadly speaking, there are two categories of annuities, each with their own key features.

  • A living annuity offers you flexibility to decide how you want to invest your retirement savings and how much income you receive, within certain limits.
  • A life annuity guarantees you an income for the rest of your life, and you don’t make any investment decisions.

Living annuity

Who bears the risk?

You bear the risk of funds underperforming and therefore running out before you die.
Is your income guaranteed for the rest of your life?

No, you will get an income for as long as your money lasts.
Can you choose your monthly income amount?

Yes, you can choose to receive an income of between 2,5% and 17,5% of your annual investment value.
Can you adjust your income every year?

Yes, within the legislated limits mentioned above.
Can you change your annuity at a later stage?

Yes, you can convert your living annuity to a life (guaranteed) annuity at a later stage.
Can your beneficiaries receive the rest of your money when you die?

Yes, your nominated beneficiaries will receive any balance left in your living annuity.
What is a ’guaranteed term’?

Not applicable to living annuities

Life (guaranteed) annuity

Who bears the risk?

Your insurer bears all the risk.
Can you choose your monthly income amount?

No, the insurance company will give you a starting income amount based on various factors. You may choose an annual escalation if you want. All income is guaranteed for life.
Can you adjust your income every year?

You may include a yearly increase option when you purchase the annuity.
Can your beneficiaries receive the rest of your money when you die?

Yes, but only if you die within the guaranteed term that you chose at the start of the annuity.
What is a ’guaranteed term’?

A set term during which your income payments will still be paid to your beneficiaries if you die in that time.

Following the introduction of the default regulations, the Momentum Retirement Annuity Fund and the Momentum Preservation Funds (“the Momentum Retail Funds”) were required to have an annuity strategy for their members.

The Trustees of the Momentum Retail Funds have decided that the annuity product linked to the Funds’ annuity strategy would be a 5% Fixed Escalation Life Annuity with a 10 year guaranteed term. This annuity is suitable for members -

  • who want a guaranteed minimum pension for life that escalates by 5% per year, and
  • do not want to make investment portfolio choices and adjust their pension on an annual basis.

This option gives an annuitant protection against longevity risk and investment risk. The 5% increase rate was set in order to offer some protection against inflation, which is targeted in the 3% - 6% per year range. The 10 year guarantee term offers the annuitant some form of being able to “leave a legacy” should he die early. The Trustees believe that 10 years is a reasonable medium term; a longer term may be too expensive, while a period shorter than 10 years may not offer sufficient value to annuitants.

The main risks with this annuity are as follows:
  • If future inflation is higher than 5% per year, it will reduce the purchasing power of the pension, and
  • The annuitant will not be able to make any changes to this product in future.

You can get more information on this product from our client call centre on 0860 546 533 or email wealthservice@momentum.co.za.

The value of financial advice

At retirement, you have to make informed decisions around your options. We recommend that you get in touch with your financial adviser to plan for your retirement together. South African retirement funds must also give their members access to retirement benefit counselling when they are close to retirement and at retirement.

If you don’t have a financial adviser and would like to speak to one, click on the "Find an adviser" button below.

Or speak to our benefit counsellors on 0860 546 533 or email wealthservice@momentum.co.za.

In case you missed it

Find all our latest and previous newsletters, all under one, easy-to-find space, for your convenience.

Retirement Funds Trustee Newsletter 2019

Retirement Funds Trustee Newsletter 2018

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