Over the past four years, there has been a decline in the average rate at which retirees draw a pension from savings in a living annuity, but most pensioners are still drawing more than the five percent of capital recommended by the Association for Savings & Investment South Africa (Asisa).
Asisa’s 2014 Living Annuities Survey released this week shows that living annuity policyholders withdrew, on average, 6.59 percent of their capital as income in 2014.
This is slightly down on the average drawdown in 2013 of 6.63 percent.
The average drawdown has decreased slightly each year since Asisa started tracking the withdrawals in 2011, when the rate was close to seven percent.
Peter Dempsey, the deputy chief executive of Asisa, says the decrease is encouraging, because the majority of retirees who are drawing more than five percent a year are eroding their capital.
Asisa says retirees have R278.9 billion invested in living annuities.
Dempsey says it is important for living annuitants to check how much they are drawing each year and to determine if the level is sustainable.
You can change the amount you withdraw annually on the anniversary of the policy, and you must withdraw between 2.5 and 17.5 percent.
When you are saving for retirement, your investments in a retirement fund must comply with the prudential guidelines in regulation 28 of the Pension Funds Act. The main guideline is that not more than 75 percent of your capital may be invested in equities.
These guidelines do not apply to living annuities, but Asisa strongly recommends that you adhere to them.
Dempsey says the survey shows that there has been a marginal drop in living annuities that do not apply the prudential asset composition guidelines: from 24.31 percent to 23.95 percent.