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C O N T E N T PA R T NE R S H I P
HOW RETIREES CAN GIVE THEMSELVES A 40% PAY RISE
F
ew retirees realise that the
Few living annuity holders
quite quickly. The more prudent
fees on their living annuity
appreciate that retirement savings
option would be to keep your
are likely to be their single
are depleted by fees, focusing
income unchanged, and let the
biggest expense in retirement,
solely on their drawdown rates.
2% pa saving compound within
and that switching to a low-cost
If you are drawing down at, say,
your living annuity. This could add
provider could boost their financial
5% pa and paying fees of 2,5% pa
5-15 years to the sustainability of
position significantly, without
(plus VAT), you are drawing down
your income (again, depending
almost 8% per year (fees of 2,5%
on your choice of portfolio and
pa is the government’s estimate
future market returns). To bring
of the industry average, typically
this to life, you can work out
annuity rather than a guaranteed
made up of 0.75% for advice, 0.25%
your own numbers using the
annuity, because it leaves them
for administration and 1.5% for
10X Investments’ Living Annuity
in control of their money. Unlike
investment management).
calculator: https://www.10x.co.za/
compromising their lifestyle. A large majority of retirees put their pension savings into a living
BY MICA TOWNSEND
those in guaranteed annuities,
If you can afford to draw down
living-annuity#calculator
they decide how much income they
at 8% pa, incurring 2% pa less in
It is a fairly simple process
draw (within regulatory limits), how
fees means you could draw down
to move your living annuity. You
their money is invested, and who
at 7% pa instead of 5% (translating
submit an application to your
inherits the balance after they die.
into an instant 40 percent pay rise)
prospective annuity provider and
without accelerating the depletion
give formal notice to the incumbent.
of your savings.
The rest happens behind the
Another important factor that tends to be overlooked is that living annuity holders can change
To illustrate, assuming you draw
scenes. If you are joining a low-cost
their service provider, usually
down 5% from your R4,8m pension
provider, there should be no initial
without restriction or penalty.
pot, you will receive a pre-tax
fee and no compulsory advice fees
With a guaranteed annuity, once
income of R240 000, or
or platform fees.
you have paid over your money to
R20 000 per month. At the
the insurance company, you are
industry’s average fee rate of almost
good reasons besides costs to
tied to them.
3% pa, you would be paying costs
switch providers, such as bad
Since you are in control of
Additionally, there are other
of around R144 000 pa (R12 000
service, poor planning tools, or
your investments and income,
per month). You would be paying
inappropriate investment choices.
the option to move might hold
yourself only two-thirds more than
little allure. But if you are paying
your service providers. Or, from
charge for advice or administration
excessive fees (more than 1% pa
another perspective, almost 40% of
and investors pay a maximum fee
in total), being able to
your drawdown goes to fees.
of 0.87%, which can reduce to as
switch providers is very valuable.
Moving to a low-cost provider,
The 10X Living Annuity does not
low as 0.40% depending on your
such as 10X Investments, which
balance. If you are in any doubt, ask
charges less than 1% pa in fees, you
10X to do a free, no-obligation cost
could draw R28 000 a month, and pay
comparison today: https://www.10x.
fees of R4 000. You are now receiving
co.za/campaign/fee-comparison •
seven times more than your service providers, a far more equitable split. But drawing down at 8% per annum will deplete your savings 24
SILVER DIGEST // AUTUMN 2021
Mica Townsend is Business Development Manager and Employee Benefits Consultant at 10X Investments.
