18 Aug 2026
Most South African retirees hold a living annuity, either as the main source of their retirement income or as one part of a broader portfolio. What it earns, what you pay in tax on the income you draw, and how it passes to your beneficiaries all comes down to how the product is structured and managed.
In our latest webinar, Nick Brummer and Stuart Dyer work through how to get the most out of a living annuity across investment performance, tax efficiency and estate effectiveness, including what a sustainable income looks like over a full retirement and how the annuity sits alongside your discretionary and offshore capital. We also answered eight practical client-submitted questions.
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Product Rules & Definition
- Eligibility: Post-retirement investment vehicle available from age 55 or upon retirement from employment.
- Capital Lock-In: Capital cannot be withdrawn as a lump sum unless the total value falls to R150,000 or below.
- Income Range: Annual drawdown must be set between 2.5% and 17.5% of the total capital value.
- Taxation: Income is recalculated annually and taxed as income (PAYE withheld at source).
Funding Routes
- Retirement Transfers: Funded by converting pension, provident, preservation, or retirement annuity (RA) funds upon retirement.
- Discretionary Cash: Cash surplus can be placed into an RA and immediately retired into a living annuity.
- Tax Limits: RA tax deductions are capped at 27.5% of income (max R430,000/year); unused excess contributions carry forward.
Investment Options & Flexibility
- No Regulation 28 Restrictions: Up to 100% offshore exposure is permitted, subject to platform limits.
- Asset Classes: Access to local/offshore equity funds, multi-asset funds, ETFs, and direct share portfolios.
- Tax-Free Switching: No Capital Gains Tax (CGT) when rebalancing assets or transferring between providers.
Sustainability & Capital Longevity
- Drawdown Cap Protection: Capital rarely reaches zero due to the 17.5% maximum annual cap restriction.
- Conservative Drawdowns: A 4.5% starting drawdown (increasing with 6% inflation) preserves income security for 25–30 years.
- High Drawdowns: Starting drawdowns of 6% to 7.5% cause income pressure within 10 to 16 years.
Death & Estate Planning
- Bypasses Estate: Sits outside the estate with binding beneficiary nominations that supersede wills and trustee discretion.
- Beneficiary Options: Beneficiaries can continue the annuity, cash out (taxed on the deceased’s tax history), or split both.
- Trust Nominations: Trusts can be nominated for minor children or special needs dependents.
Tax & Section 10C (Excess Contributions)
- Tax-Exempt Drawdowns: Unclaimed excess RA contributions can generate tax-free living annuity income.
- SARS Refund: PAYE is withheld initially, but SARS refunds the tax upon annual tax assessment filing.
- Non-Inheritable: Tax exemption ends on the original investor’s death and does not transfer to beneficiaries.
Webinar Q&A Summary
Q1: Should one live off a living annuity first or access other assets first?
- Requires individual liquidity modeling based on overall net worth.
- Preserving discretionary cash helps fund unexpected expenses or lump-sum capital needs later in retirement.
- Blending living annuity income with discretionary funds usually delivers the best tax and longevity outcomes.
Q2: How do you handle a bad market year right before an anniversary?
- Keep the rand value of your income flat for 1–2 years if financially possible.
- Avoid compounding market losses by taking higher percentage drawdowns off a reduced capital base.
Q3: How long before capital is depleted at a 17.5% annual drawdown on R20 million?
- Takes ~43 years to reduce capital down to the R150,000 full-cash withdrawal threshold.
- Because 17.5% is calculated on a shrinking value each year, capital erodes slowly over decades.
Q4: How should you structure a living annuity portfolio?
- Match asset allocation to your risk profile (e.g., moderate conservative: 40–50% equity, 20–30% offshore).
- Blend 4 to 5 unit trusts using a mix of active and passive strategies.
Q5: Can I continue making tax-deductible RA contributions while drawing from a living annuity?
- Yes, by opening a new, separate RA policy in retirement.
- Contributions reduce taxable income, and the new RA can be retired into the living annuity later.
Q6: Can you switch between a life annuity and a living annuity in a hybrid model?
- No; funds committed to a guaranteed life annuity cannot be switched back to a living annuity.
- Living annuities provide greater overall flexibility; life annuities are generally better suited for older ages (70–75+).
Q7: How can high tax on living annuity income be managed?
- Living annuity drawdowns are fully taxable as income.
- Balance income across “three pillars”: living annuities, discretionary funds, and tax-free/offshore accounts.
Q8: Can you have multiple living annuities or bequeath them to different beneficiaries?
- Yes; you can set percentage splits within one policy or set up multiple separate policies.
- Primary and secondary beneficiaries can be customized per policy.
