Choosing the right annuity at retirement
A successful retirement means you can maintain your current standard of living without financial assistance from others.
When you retire, you have to use at least two-thirds of your retirement savings in your retirement fund to purchase an annuity, subject to certain exceptions. This will provide you with a regular income during your retirement years.
It’s essential to consult with a financial adviser about your retirement options, including choosing the right annuity. Alternatively, use retirement benefit counselling to understand your options.
Types of annuities
Broadly speaking, there are two types of annuities, each with their own key features:
A life annuity guarantees you a specified income for the rest of your life, and you don't make any investment decisions. Your income will be paid for as long as you live. Suppose you selected a guarantee period and die within that period. In that case, that part of the annuity that would have been paid until the end of the guarantee term will be paid to your nominated beneficiaries.
A living annuity offers you flexibility to decide how you want to invest your retirement savings and how much income you want to receive, within certain limits. Your income will stop once the capital is depleted. If you die while there is still a portion of your capital left, it will be paid to your nominated beneficiaries.
Is there an option for those who find it difficult to choose?
Yes. They can choose the trustee-approved annuity offered by the retirement fund.
The Pension Funds Act regulations require the trustees of retirement funds to have a well-considered annuity strategy. The annuity strategy must be reviewed annually, considering various aspects, including the average annuitant requirements; economic and investment market forecasts; social factors; and the range of annuity products available in the market.
This is not an automatic selection, and you must indicate that you want this trustee-approved annuity at retirement.
The trustees of the Momentum Retirement Annuity Fund and the Momentum Pension and Provident Preservation Funds have approved the following as part of the funds' annuity strategy:
This option provides the following:
- An income for the rest of your life. The starting income will depend on the lump sum you use to purchase the annuity and your age at that time.
- The income amount will increase by 5% every year.
- A 10-year guarantee term. This means that your beneficiaries will receive the remaining income payments if you pass away within the 10-year guarantee term.
- If you are single, the income will pay out for as long as you live.
- If you have a spouse or life partner, the income will be paid until the last one of you passes away.
- Inflation is unpredictable. In future, inflation may increase faster than the stipulated yearly increase in your income.
- You can't make changes to the product in future.
- After the guaranteed term, your beneficiaries will pay no benefit when you pass away.
All costs associated with your annuity are already accounted for when calculating your income payments and will not affect the income you receive. If you use a financial adviser and choose this option, you may have to pay an adviser fee for the advice and intermediary services. You negotiate your financial adviser's fee.
Get financial advice
Take charge and ensure you receive a monthly income to maintain the life you've become accustomed to well into retirement.
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.
Select the “Find an adviser” button below if you don't have a financial adviser or speak to our retirement benefit counsellors on 0860 546 533.
In case you missed it
Find all our previous newsletters under one, easy-to-find space, for