Pensioners with living annuities withdrew 6.62% of their retirement savings, on average, as income last year, according to the 2016 Living Annuities Survey compiled by the Association for Savings & Investment South Africa (Asisa). This represents a marginal increase on the 6.44% recorded for 2015.

The survey reports that, in 2016, South Africans had R333.2 billion of their retirement savings invested in 380 186 living annuities. In 2015, there were 410 898 living annuities with assets of R331.6bn.

Taryn Hirsch, the senior policy adviser at Asisa, says the small increase in the drawdown rate came as a pleasant surprise given the steep rise in the cost of living in South Africa in recent years.

“While we would have preferred to see the drawdown rate continue the small, yet steady, downward trend of the past five years, we have to accept that many pensioners are finding it increasingly difficult to maintain their standard of living without adjusting their drawdown rates upward.

“Consider that inflation came in at 6.6% for 2016 and the FTSE/JSE All Share Index returned only 2.6%. Under those circumstances, the small increase is understandable, and pensioners and their advisers need to be commended for tightening the proverbial belt rather than increasing their drawdown rates substantially.”

While the average drawdown rate may show how pensioners are faring overall when comparing one year with the next, it provides little indication of whether they are drawing too much or too little in the context of their own lives. This is because, although it is feasible to draw down almost seven percent of your savings when you’re 85 years of age, when you possibly expect to live for another 10 years at the most, the figure is too high for someone who has just retired at age 65.

Johann Swanepoel, the product actuary at Just, a specialist annuity provider, warns that the average drawdown figure masks the real problems facing pensioners, for the following reasons: 

• The average is skewed towards pensioners with a large amount of capital who typically draw a very low income as a percentage of their total savings; and 

• The number of pensioners grows every year. This means that the average age of the pensioner population could be getting younger every year. This is important, he says, because younger pensioners typically start to draw down a pension at lower rates.

"You need to strip out these elements and focus on the majority of the pensioners who rely entirely on what they have in their living annuities to sustain them for life. What has happened to them?" Swanepoel asks.

He says many pensioners are not well equipped to deal with the major risks inherent in living annuities: investment risk, inflation risk and longevity risk.