LIVING ANNUITIES:
My professional approach to setting up and managing your Living Annuity should enable you to enjoy a secure retirement. At retirement you are obliged to invest two-thirds of your pension proceeds into a Living or Standard Annuity. The Living Annuity has the main benefit of being able to be passed onto family members, but you have to look after it. With some outstanding Prudential funds available in South Africa your returns can be very good. e.g. The Coronation Balanced Defensive Fund returned 16.4% and the Foord Balanced Fund 21.9% in 2012. (The Standard Annuity may be useful at say aged 80 if you are in good health, feel that you might live a long time, wish to have a secure income and don’t have family or wish to leave monies to others on your death. That said, the income is guaranteed but not necessarily that high. The figures for Guaranteed Annuities from various Life Companies are published in Personal Finance every Saturday based on R100,000. e.g. Old Mutual was quoted on March 2, 2013 in Personal Finance, as paying R744.53 per month for a male. This is R8,934.36 per year. An 8.9% return, so you could most likely do much better if you take on a little risk. Of course if you are 80 and in certain circumstances, as mentioned above, you might just prefer the Guaranteed Annuity).
With my intimate knowledge of the financial services industry in South Africa, I have selected Allan Gray as the investment company of choice as they have an excellent and efficient operation along with an outstanding Call Centre. (I was one of the first financial advisers to join them in 1998 when Allan Gray had just started to go public and its only fund was the Allan Gray Equity Fund.)
The great thing about Allan Gray is that it has a Linked Provider Platform for your Living Annuity that enables you to choose from an excellent selection of funds in which to invest. This means you can choose the best funds from top companies such as Allan Gray, Coronation, Foord, Prudential, Marriot, Nedbank and many others, to suit your needs and risk tolerance. Some other companies only offer their own funds in which to invest.
Living Annuities are excellent financial products but they have to be properly set up and carefully managed to ensure they provide a continual income in retirement linked to inflation. I have over 18 years’ experience in setting up and managing Living Annuities and over 30 years’ experience in the financial services industry.
Do you intend to do other work in retirement? I highly support working in retirement. It is a wonderful way to keep mentally active and it also allows for the further build-up of capital for you and your family. I can simply open up another account for you with Allan Gray where you can invest other earned income (or your one-third of your pension that you may have taken out at retirement) and allow that investment to further build up. Tax rebates are higher after 65 and that helps further. Also more people are living longer. The amount of people living in South Africa who are over 100 is amazing. (Over 15,000 according to the Census 2011 results with 358 people claiming they were between 115 and 120). If you are really healthy and might live this lifespan, your financial adviser needs to take this into consideration. Naturally you will need to take a lower drawing to ensure your monies last.) Working in retirement also means that you can draw less from your living annuity and further places you in a more secure financial position. I have quite a few retired folk who keep on working. What strikes me is just how they have truly gained from their post-retirement income in both financial and health terms. Some are working still in their eighties and enjoying whatever it is that they do.
For the average person who would simply retire and do no further income-producing work, it makes a meaningful difference retiring at age 63 for example, rather than age 60. Firstly, the pension monies have three more years to build up and three less years from which no income need be drawn. Naturally this situation is further improved if the person retires at 65 to 70. If you retire now at 63 with R2 million you might just have enough to scrape through. If you retire now at 65 with R2 million your finances would be better.
The initial advisory fee is 2.0% and the annual fee is .50% per year on the investment.
Allan Gray does not charge an initial fee.
Minimum investment: R2 million.
For more information:
http://www.allangray.co.za/individualInvestors.aspx#get-income
Mark Sandison Wealth Management 