Some clarity

Living annuities and the practice note from Vlok Symmington - RF 196 as reported on FA News recently, implies that there is an income for life.

In the old days it (living annuities) was developed for people to defer income yield to provide capital growth and an inflation protection angle. Kevin Hinton head of investment marketing at Momentum, was speaking at the Momentum Wealth investment conference in the North West province.

The income for life approach is untenable, when clients are drawing down up to 20%, meaning that the life office would have to underwrite the income for life approach, says Hinton.

An while the response has been to reduce the level of adjustment should be dropped to between 5% and 12%, which is what the other two big players - Sanlam and Old Mutual - proposed when they adopted a more acquiescent route, they balanced this with a whole bunch of restrictions. Reducing the level doesnt address the issue, says Hinton.

Momentum and Investec took a different approach, and a white paper was developed.

Living annuities now accounts for 70% of that business within Momentum. Hinton indicated that brokers have been guilty of miss selling promising all sorts of drawdowns. Capital erosion then becomes an issue.

In terms of the regulators, Hinton indicated that a meeting with SARS this week, to discuss the white paper that was developed by Momentum and Investec had been fruitful, and it appears that there is some agreement, although the matter is by no means finalised.

Warning lights On a different matter Hinton says that the 15% limitation on what can be taken offshore via institutional and retail funds, has raised its head again, with SARS saying that they take a consolidated view on offshore investments limits.

It appears that there are problems with funds that dont comply in terms of retail and institutional offshore exposure and the percentages that are driving the repatriation questions that are being raised.