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Living annuity

Generally a living annuity (as distinct from a conventional life annuity, under which a fixed rate of return for life is contractually agreed) is a compulsory purchased investment from a financial institution with a minimum two-thirds of a retirement fund member’s interest upon retirement. A feature of a living annuity (unlike a life annuity, which ceases upon death and is thus forfeited) is that any balance of the investment value upon death of the annuitant may be bequeathed to beneficiaries. The annuitant of a living annuity is currently restricted to an annual drawdown (which is usually paid monthly) of between a maximum of the investment value of 17,5% and a minimum of 2,5%, as elected by the annuitant upon the date of purchase of the investment and thereafter as elected upon each anniversary date.

Two relief measures

Immediate access

An annuitant may make an immediate election, instead of waiting until the next anniversary date, to increase or reduce the drawdown, thus individual annuitants suffering cash-flow constraints may increase the amounts received by them, or, conversely, decrease such amounts.

An election to decrease the amounts would be to preserve capital and alleviate the possible need by the financial institution issuing the living annuity to sell part of the underlying investments in a depressed market in order to sustain the drawdown amount.

An FSP should ensure that an annuitant client makes an informed decision regarding capital conservation or erosion.

Drawdown increases/decreases

The maximum annual drawdown rate is increased from 17,5 to 20%, and the minimum rate is reduced from 2,5 to 0,5%.

Effective date

The above proposed measures by the Treasury to be promulgated under the Disaster Management Tax Relief legislation will be implemented for a limited period of four months, commencing 1 May 2020 and ending 31 August 2020.

Based on a Treasury media statement dated 23 April 2020