For many South Africans, a Living Annuity is more than just a retirement income solution — it’s also a financial legacy. When structured carefully, your Living Annuity can continue supporting loved ones after your death, offering both income flexibility and tax advantages.
In this guide, we explain how a Living Annuity works for beneficiaries, why nominations matter and what your heirs should consider when inheriting a Living Annuity.
A Living Annuity is a retirement product that lets you draw an income while keeping your capital invested. You choose your annual drawdown (between 2.5% and 17.5%) and your investment mix.
This flexibility allows for growth and adaptability during retirement, unlike a Life Annuity, which offers guaranteed income but no control or legacy value.
Why Nominate Beneficiaries?
Your Living Annuity sits outside your estate — meaning if you nominate beneficiaries, the funds pass directly to them without going through your will or incurring estate duty. This avoids delays, reduces admin costs and ensures continuity of income.
If no beneficiary is nominated, the Living Annuity is paid into your estate and may be taxed accordingly, delaying access for dependants.
Options Available to Beneficiaries
Beneficiaries of a Living Annuity can:
- Take the full amount as a lump sum, with tax applied based on the retirement tax tables.
- Continue the Living Annuity in their own name, taxed as income at their marginal rate.
- Choose a combination — take part as a lump sum and transfer the rest to a new Living Annuity.
It’s worth noting the first R550,000 of a retirement lump sum may be tax-free, assuming no portion has already been used.
Investment Strategy for Sustainability
To maximise what’s available for your beneficiaries, aim for sustainable investment practices:
- Choose a drawdown rate around 4% per year, especially early in retirement.
- Use a mix of local and offshore investments to spread risk and access global growth.
- Include long-term growth assets like equities for capital appreciation.
- Rebalance portfolios regularly, especially as your needs or market conditions change.
The Golden Rule applies here too:
Returns ≥ Fees + Drawdown + Inflation
If your investments don’t at least match that, capital will decline over time.
Can Beneficiaries Change the Investments?
Yes. Once a Living Annuity is transferred into a beneficiary’s name, they can adjust the portfolio based on their own risk profile, time horizon and income needs. This ensures the annuity remains aligned to their personal goals.
Tax Considerations for Beneficiaries
When beneficiaries continue the Living Annuity, their income is taxed at their marginal rate. This can be beneficial if they fall in a lower tax bracket. However, if combined with other income, it may push them into a higher bracket — so drawdown strategy and planning matter.
Leaving a Legacy Starts with Planning
Make sure to:
- Review and update beneficiaries regularly.
- Understand the fees and performance of your annuity provider.
- Reassess drawdown and asset allocation every year.
- Use a Retirement Calculator to project how long your income and capital could last.
In Summary
Your Living Annuity is not only a tool to fund retirement — it’s a way to leave a lasting financial impact. Nominating beneficiaries, keeping fees low and planning drawdowns carefully ensures that your capital can continue supporting the people you care about.
If you’d like help reviewing your Living Annuity structure, fees or legacy options, speak to one of our retirement specialists for a personalised, independent comparison.
