MONEY
A D V E R TO R I A L
BENEFITS OF BLENDING Solving the life versus living annuity debate
I
f you invested your retirement
risk spectrum between needs and
to a lifetime income portfolio within
capital in a living annuity, you are
wants, as blended solutions allow
a living annuity investment vehicle,
able to change your ‘drawdown
them to decide how much of their
which operates the same as a with-
rate’ annually on the anniversary
living annuity portfolio should
profit annuity. If the couple allocate
of your policy. This is the rate at
be allocated to the guaranteed
which you draw down from your
component, and how much
investment to give yourself an
should be invested in the
income for the next twelve months.
market,” says Just SA
With the cost of living constantly
CEO Deane Moore.
50% to the lifetime income portfolio, at a 4% drawdown rate, they can secure an income of R22 500 of which R12 500 is provided
increasing, it is very tempting to
“This gives them
by the lifetime
increase your drawdown rate when
full discretion to
income portfolio.
your anniversary rolls around.
increase their long-
However, this can be very detrimental
term capital growth
to your overall financial wellbeing.
to meet flexible
In practical terms, an increase
financial needs or
of just one percent, say from 6.5%
to leave a legacy to
of your capital to 7.5%, could
beneficiaries.”
significantly threaten your ability to have a sustainable income for life.
In this way, the couple has retained some flexibility, improved the sustainability of their retirement income, and
A PRACTICAL EXAMPLE A financially astute couple, a
mitigated both longevity and investment risk.
SUSTAINABLE PENSIONS
65-year-old male and a 61-year-old
However, if you really do need to
female, have R6m in retirement
increase your monthly income, there
savings. They calculate that they
GRAPPLING WITH THE ANNUITY DEBATE
are new options in the retirement
need a retirement income of R20 000
At retirement, investors must grapple
income space that allow for a higher
per month, being around 65% of
with choosing which annuity is best
income with less risk to your long-
their final pre-retirement household
for them, even if annuity options
term financial security.
salary, to live comfortably in their
are pre-selected by the trustees of
golden years. This equates to a
a retirement fund. Once the choice
drawdown rate of 4% per annum.
is made, current regulations do not
Retirement income specialist Just SA developed a new-generation, with-profit life annuity that could
The other option is for the couple
allow living annuities to be split after
enable you to increase your monthly
to secure a with-profit life annuity,
retirement. There is, however, the
income by up to 25% on purchase.
giving them an initial R25 000 per
option to transfer a living annuity to a
In return for the higher income, you
month (a rate of 5% in normal market
provider who offers a blended annuity
would need to forego the flexibility
conditions) that is guaranteed for
with a lifetime income portfolio.
of changing your drawdown rate
life, with 100% of the income payable
each year.
while either one is alive. The monthly
good choice for pensioners looking
If you value flexibility, consider a
A blended annuity may serve as a
income never decreases, and the
to balance a guaranteed sustainable
hybrid or blended annuity that offers
couple is eligible for annual increases
income with flexibility. It is also not
a combination of a living annuity and
on this income, which can never
an all-or-nothing decision as it is
a life annuity.
be less than zero. This offers good
possible to increase the allocation to
protection against inflation.
the lifetime income portfolio at a later
“By purchasing a blended annuity, pensioners can choose where they want to position themselves on the 24
SILVER DIGEST // SPRING 2020
A blended annuity will allow them to allocate a portion of their capital
stage without splitting the annuity, in line with regulations. •
