What is a living annuity?
In retirement, your savings have to provide an income for you, and often for your spouse, for as long as you live. A living annuity is one way to turn those savings into an income. When you retire from a retirement annuity (RA), pension, provident or preservation fund, the part that must buy an income can go into a living annuity.
The money stays invested in funds you choose, and you decide how much income to draw, within limits set by law. There is no promise that your income will last. It depends on how your investments perform and how much you take out.
How much income can you draw?
You choose an income of between 2.5% and 17.5% of your living annuity’s value each year. You pick the rate when you start, and you can change it once a year, on the policy anniversary. (Living annuities bought before 21 February 2007 can have different limits.)
For example, on a living annuity worth R2 million, 2.5% is R50,000 a year and 17.5% is R350,000 a year.
The income is added to your other income and taxed like a salary.
What are the risks?
- Running out. If you draw too much, or your investments do badly, your income can shrink over time. You carry this risk, not the insurer.
- Investment choices. Unlike a retirement fund, a living annuity usually has no set legal limits on how it is invested. That freedom also leaves more room for mistakes, such as taking too much risk, or too little.
- Costs. Platform, fund and advice fees come out of your capital every year, on top of the income you draw.
Things to know
- Small amounts. If the value falls below R150,000 (from 1 March 2026), you can take it all in cash, and it is taxed. Treasury has proposed a law change confirming that all your living annuities with the same provider are added together for this test.
- Switching. You can move a living annuity to another provider. You can also convert it to a life annuity, which pays an income for the rest of your life, but you usually cannot switch back.
- When you die. What is left goes to the beneficiaries you nominate, such as your spouse or children, as cash, an income or both. If you have not nominated anyone, it is paid into your estate.
Who it suits
A living annuity may suit you if you want flexibility, have other income or assets to fall back on, and are comfortable with investment risk.
If you want an income that lasts for the rest of your life, however long you live, a life annuity may suit you better. You can also split your savings between the two.