A Living Annuity can be an attractive retirement-income solution because it gives a retiree considerable flexibility over how their retirement capital is invested and how much income they draw each year.
But that flexibility comes with responsibility. Unlike a Guaranteed Life Annuity, a Living Annuity does not guarantee that the capital will last for the rest of your life. The investment performance, income drawn and longevity of the retiree all play a role.
There are also a number of rules surrounding beneficiaries, income withdrawals, death benefits and the ability to convert a Living Annuity into a Guaranteed Life Annuity. Understanding these rules is important when deciding whether a Living Annuity is appropriate for your retirement.
1. WHO CAN BE NOMINATED AS A BENEFICIARY?
One of the major attractions of a Living Annuity is that the remaining capital can pass to beneficiaries when the annuitant dies.
The annuitant can nominate one or more beneficiaries, who can be a spouse, child, other person, or even a trust. When considering nominating a trust, the provider of the Living Annuity should first be approached to confirm its rules and the implications of these, both practically and in terms of tax.
One of the important differences between a Living Annuity and a Guaranteed Life Annuity is that, with a Living Annuity, the remaining capital can potentially continue to benefit the next generation.
It is therefore important to keep beneficiary nominations up to date and to understand how the nominated beneficiaries will be treated when the annuitant dies.
What options do beneficiaries have?
Beneficiaries can choose to receive their benefit as a lump sum, use it to purchase a Living Annuity or Guaranteed Life Annuity, or use a combination of these options.
2. HOW MUCH INCOME CAN YOU TAKE FROM A LIVING ANNUITY?
A Living Annuity does not allow you to withdraw whatever amount you want whenever you want.
The annual income must generally fall between 2.5% and 17.5% of the Living Annuity’s value, with the calculation determined at the applicable annual review date.
The selected income percentage is applied to the value of the Living Annuity at inception and at each subsequent annual review date. The income percentage can only be changed at the annual review date, subject to the rules of the product. The rand amount of income can therefore change from year to year as the capital value changes.
Income can be paid monthly, quarterly or annually, either in advance or in arrears, depending on the product arrangements.
For example, suppose a Living Annuity is worth R2,000,000 at the relevant calculation date.
A 5% drawdown would provide approximately:
R2,000,000 × 5% = R100,000 per year
A 10% drawdown would provide:
R2,000,000 × 10% = R200,000 per year
The retiree cannot simply stop taking an income altogether while remaining in the Living Annuity. The 2.5% lower limit means that a minimum level of income must be drawn.
A relatively low drawdown rate may, however, reduce the rate at which capital is depleted and give the capital a greater opportunity to grow if investment returns exceed withdrawals and costs.
At the other extreme, the 17.5% upper limit prevents a retiree from simply withdrawing a very large portion of the capital in one year.
The upper limit is particularly important because drawing a high percentage of capital can significantly increase the risk that the Living Annuity will not sustain the retiree’s income for life.
For example, a retiree who consistently draws 17.5% of the capital each year is taking a very high level of income relative to the available capital, and the Living Annuity is unlikely to be sustainable over a normal retirement lifetime unless exceptional investment returns are achieved.
The objective should therefore not simply be to ask:
“How much income can I take?”
but rather:
“How much income can I sustainably take while giving my capital a reasonable chance of supporting me for the rest of my life?”
That distinction is at the heart of good Living Annuity planning.
3. THE DE MINIMIS RULE
There are two related concepts that could get confused.
First, when retiring from a retirement fund, the retirement annuitisation de minimis threshold is important. From 1 March 2026, this threshold increased from R247,500 to R360,000. Where the applicable retirement benefit is R360,000 or less, the annuitisation rules can allow the full amount to be taken as a lump sum rather than requiring an annuity.
Second, there is a separate rule dealing with an existing Living Annuity that has become very small.
From 1 March 2026, the prescribed Living Annuity commutation threshold increased to R150,000. Where the remaining value falls below the prescribed amount, the full remaining value may be withdrawn and paid as a lump sum, subject to the applicable tax treatment.
The distinction is important because they operate at different stages of the retirement process.
4. CAN YOU TRANSFER A LIVING ANNUITY TO A GUARANTEED LIFE ANNUITY?
Some or all of the capital in a Living Annuity can be used to purchase a Guaranteed Life Annuity to accommodate changing needs in retirement.
This can be an important retirement-planning strategy.
A Living Annuity leaves the investment and longevity risks largely with the retiree. A Guaranteed Life Annuity, on the other hand, transfers longevity risk to the insurer in exchange for a guaranteed income for life.
This means that someone might begin retirement with a Living Annuity because they value flexibility and access to capital but later decide that they would prefer the security of a guaranteed lifetime income.
For example, a retiree might initially use a Living Annuity while they are comfortable managing investment risk. As they get older, however, they may decide that knowing they will receive an income for the rest of their life is more important than retaining access to the capital.
The reverse is not possible: once capital has been used to purchase a Guaranteed Life Annuity, it cannot simply be converted back into a Living Annuity.
This makes the decision to purchase a Guaranteed Life Annuity an important one.
5. CAN YOU CONTRIBUTE ADDITIONAL MONEY TO A LIVING ANNUITY?
A Living Annuity is a retirement-income product, not a normal savings account. You cannot simply add personal savings to an existing Living Annuity whenever you want.
For example, you cannot simply decide to add R100,000 of personal savings to an existing Living Annuity.
A Living Annuity is funded through a retirement benefit or a transfer from another qualifying retirement arrangement or Living Annuity, rather than through ordinary personal contributions.
6. LIVING ANNUITIES AND TAX
It is important to understand how tax works on a Living Annuity during the lifetime of an annuitant and at the death of an annuitant.
The income received during the lifetime of the annuitant is taxable income and is taxed according to the income tax tables published every year. This applies to both the original investor and beneficiaries who choose to take their benefits in the form of an annuity.
When an annuitant dies, any portion of a benefit that a beneficiary chooses to receive as a lump sum is taxable under the retirement lump-sum tax table, with the relevant history of the deceased annuitant taken into account when determining the tax payable.
The first R550,000 of the retirement lump-sum tax table is currently taxed at 0%.However, this is not necessarily a fresh R550,000 allowance at death. Previous qualifying retirement fund lump sums received by the deceased are taken into account when determining the tax payable on a subsequent lump sum.
Where a beneficiary chooses an annuity, the amount transferred to the annuity is not taxed as a lump sum. Instead, the income subsequently received by the beneficiary from the annuity is taxed as income.
If a Living Annuity is withdrawn under the de minimis rule, the lump sum is subject to tax under the retirement fund lump-sum tax table, with the applicable previous retirement fund lump-sum benefits taken into account in determining the tax payable.
LIVING ANNUITIES: THE BIGGER PICTURE
A Living Annuity offers something that a Guaranteed Life Annuity cannot easily offer – flexibility and the potential for capital to remain available to beneficiaries.
But that flexibility comes with risk.
The retiree has to make ongoing decisions about:
- How the capital is invested;
- How much income is withdrawn;
- How much investment risk is appropriate;
- How inflation affects future spending;
- How long the capital needs to last; and
- Whether some or all the capital should eventually be used to purchase a Guaranteed Life Annuity.
A Living Annuity should therefore not be viewed simply as an investment account from which you draw a pension. It is a retirement-income strategy that needs to be managed over the course of retirement.
The most important question is not simply whether the Living Annuity is performing well today.
It is whether the combination of investment strategy, income drawdown, costs, inflation and longevity is sustainable for the rest of your life.
Disclaimer: This article is provided for general educational and information purposes only and is not intended to constitute financial, investment, tax or legal advice. The rules and legislation governing retirement funds, Living Annuities and Life Annuities may change from time to time, and individual circumstances can produce different outcomes. The examples provided are illustrative only and should not be regarded as recommendations. Before making any decision regarding a Living Annuity, beneficiaries, retirement income or the purchase or transfer to a Life Annuity, you should obtain appropriate advice from a suitably qualified financial adviser and, where appropriate, a tax or legal professional. The information in this article should not be relied upon as a substitute for personalised financial advice.
Information relating to the 2026 thresholds and tax treatment was checked against SARS material available as of September 2026.