Reaching retirement is an exciting time of life; this is when you can finally take the time out to reward yourself with the finer things in life and look forward to spending quality time with your family and possibly your grandchildren. But it can also be
In South Africa, retirees have always had two main options in which their retirement savings could be invested into, namely a life annuity or a living annuity. A life annuity guarantees a fixed, increasing income for the remainder of your life, but offers little or no investment growth. Whereas if you opt to invest your retirement benefit into a living annuity, it offers investment growth and allows you to choose the income that you would like to draw on each year, but you risk outliving your capital.
This flexibility of the living annuity product has seen it growing in popularity in recent years. In fact, according to ASISA, in the six months to December 2011, R11.4bn worth of living annuities were sold compared with just R2.2bn of life annuities.
However, investing in a living annuity is not without risks - the most significant of which are the possibilities that either your investment doesn’t deliver the returns you require or that the income you draw year-after-year causes your investment to decrease too quickly and you end up outliving your retirement capital
To address these risks, Liberty has developed a new product that effectively gives retiring individuals the best of both annuity options. It’s called the Flexible Annuity and, according to Andrew Methmann, Head of Investment Product Management at Liberty it’s set to revolutionise retirement investments in South Africa.
Methmann’s claim is based on the fact that the Liberty Flexible Annuity offers retirees a unique design that includes access to all the usual investment and income flexibility, tax efficiency, and cost savings of a Living Annuity, but combines this with the option to boost their income or capital via the Income Enhancer Benefit.
“The Income Enhancer benefit is a voluntary option, at no additional cost, to a shared bonus pool,” explains Methmann. “By choosing this optional benefit, retirees invested in the Flexible Annuity will be entitled to a share of that bonus pool’s pay-out each year. It is important to note that by choosing the benefit it means that the portion that is committed will then be forgone on their passing away and not available to their dependants.”
Methmann explains that this bonus is added to the person’s Flexible Annuity investment value, which means it can then be used to either increase their annual income or left to grow their invested capital.
“A further advantage of the Income Enhancer Benefit is that it does not reduce the amount of the capital that the person has invested in the Flexible Annuity while they are alive,” he points out, “which means that the individual does not lose out on the income that they can receive by having the benefit, compared to if they did not select the benefit.”
Methmann says that the Income Enhancer Benefit is particularly valuable to those whose post-retirement income requirements may increase due to health or lifestyle challenges. “Without the Income Enhancer Benefit, this need for additional income could force the person to use-up their retirement capital too soon,” he says, “but having the benefit in place means the possible increased income needs can be accommodated more easily without having to negatively impact on one’s total retirement capital.”
The Flexible Annuity also offers investors a choice of a wide range of underlying investment portfolios with up to seven of these being able to be chosen. This allows them to actively manage their retirement investment according to their personal preferences and unique financial growth and income needs.
“Since the initial product was launched in 2002, Liberty’s Living Annuity has always been one of the most cost effective in its category,” Methmann points out, “and by being enhanced to create the Flexible Annuity, which is a first in South Africa to afford retirees the protection against outliving their capital need, the value offered through Liberty’s Flexible Annuity is further increased.”
“And when you consider that retirees selecting this value-adding solution also enjoy access to the professional investment advice of certified financial advisers to help them maximise their investment growth,” he concludes, “South African retirees now have the opportunity to benefit from the best of all investment worlds simply by selecting the Liberty Flexible Annuity.”