Living annuity fees: A deep dive into the impact of high living annuity fees

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While many retirees focus on their living annuity’s drawdown rate and performance when doing their annual review, a common area of neglect is fees. The fees that you are paying on your living annuity can play an important role in the potential growth of your living annuity and ultimately how long it can provide you with an income through your retirement years.

Higher fees can reduce flexibility, limiting your ability to adjust drawdown rates or respond to market changes. Staying aware of fees is the first step to making sure your money stays invested and working for you.

But fees don’t just reduce the amount available to invest; they also compound over time, meaning that every percentage point paid in fees directly reduces your potential wealth accumulation. Understanding exactly what you are paying and why is therefore important for making informed decisions about retirement.

Even a small difference in fee percentage can have a major impact on the longevity of your living annuity. Over decades, the compounding effect of fees can be massive, especially when combined with higher drawdown rates. If you keep fees low, you can maximise the portion of your returns that is reinvested, helping to keep your living annuity more sustainable in the long term.

In this article, we will take a closer look at the effect of fees on your living annuity and how focusing on minimising fees can potentially have a profound effect on your retirement income.

Quick recap: How a living annuity works

A living annuity is a flexible long-term investment that allows you to invest your retirement savings while drawing an income from the investment. You can select your living annuity drawdown rate annually at the policy anniversary date, which is the date at which you start your living annuity.

Your drawdown rate selected can be a rate between 2.5% and 17.5%. A sustainable drawdown rate is generally considered to be 4% by experts. Additionally, you are also able to select your payment frequency. Payments can be done annually, bi-annually, quarterly or monthly, depending on your selection.

The potential growth of your living annuity should be a major consideration, as this annuity is how you receive your income in retirement, and the more it grows, the less you have to worry about your retirement money running out. It’s also important to remember that your retirement income is directly linked to how your investments perform. Market fluctuations can affect your capital and your withdrawals.

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As such, a proactive approach where you regularly review performance, drawdown rate and investment strategy is recommended for ensuring that your living annuity continues to meet your income needs.

Furthermore, fees and asset allocation can both impact the growth of your living annuity, so these should be carefully monitored. Staying aware of these factors means you can make informed adjustments over time, whether to rebalance your portfolio or review the impact of fees.

This helps to protect your retirement income and make your living annuity last as long as needed. Whenever needed, you can make changes to your asset allocation to ensure that it meets your changing needs over time as well as your long-term financial plan. H2: The living annuity silent tax: How fees erode your retirement income Even small fees can quietly reduce the amount of income your living annuity provides over time, highlighting the importance of fee awareness for retirement planning. Fees act like a silent tax, eating into your capital each year.

Fees reduce your net returns

Your living annuity has the potential to generate investment growth, but fees are deducted from these returns. The higher the fees, the more your investment is diminished, leaving less capital to potentially grow and compound over the long term. Over the long term, even seemingly minor fees can have a major impact on your retirement savings.

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The real compounding effect

A difference of 1% may not seem like a lot. However, when this difference is compounded over many years, it can have a significant impact on the potential growth of your annuity and ultimately your final investment value. Small fee differences accumulate, which means a higher-fee annuity can result in hundreds of thousands of rand less over time.

Why fee awareness matters more in retirement

The combined effect of higher income drawdowns and high fees can affect the sustainability of your living annuity, and you even run the risk of your retirement savings running out much quicker than you anticipated.

Fee impact example

Let’s look at an example to help show the effects of fees on your living annuity, especially when this is compounded over time. We will assume the following for this example:

• Investment amount: R2 million
• Investment period of 25 years
• Drawdown rate: 4% (assuming an annual payment)
• Return of 12% per annum
• An inflation rate of 6%

Example 1 (0.86% Fees): Real investment value is approximately R2.36 million.

Example 2 (3% Fees): Real investment value is approximately R1.45 million.

What may seem like a small difference in fees can have a significant impact on the sustainability of your living annuity in the long term, as this example shows. This example is for illustrative purposes only, and actual results may vary. You can learn more about fees here.

What fees look like in practice

The typical fees that you can expect to see deducted from your living annuity are as follows:

Administration fees: These are the fees linked to the administration of the fund. Tasks included would be reporting, compliance, tax and similar.

Advisor fees: An advisor will charge fees for the advice that they give to their clients. They may charge both an initial and an ongoing fee.

Management fees: These are the fees charged for the management and running of the fund.

At 10X, our fee structure is simple, transparent and easy for all to understand. Fees charged are usually less than 1%. This will depend on the amount invested and the product selected. Please visit our product page for the most up-to-date fee information. Fee information is correct as of the 12th of November 2025.

The Effective Annual Cost (EAC) is a standardised metric introduced by ASISA in 2015. This is a way for investors to see all the fees and costs that are being deducted over a one-year period of time. The EAC can be viewed on your statement, or you can request this from your service provider.

All factors being equal, you may find that a higher EAC means that there are fewer returns to be reinvested and allowed to compound over time. A lower EAC may mean that there are more returns available to be reinvested and allowed to compound over the long term. The EAC of your investment would be just one consideration when evaluating service providers.

At 10X, we offer a handy EAC calculator, which is a part of our free suite of online tools for investors. This can be of value if you are looking to compare and evaluate the EAC charged by your service provider with the EAC charged by 10X.

The role of asset allocation

Your asset allocation is the other important factor in the real returns that your living annuity generates. In fact, asset allocation plays the biggest role in the performance of your living annuity, accounting for over 90% of returns, as seminal research from Brinson, Singer, and Beebower shows.

As an investor with 10X, you can adjust your underlying portfolio by choosing from a comprehensive range of strategically curated investment funds. Each fund is invested in a different mix of assets and geared towards different investor profiles. This asset allocation can be a mix of the different asset classes, namely: equities, real estate, bonds and cash. You will need to be strategic when selecting a fund to invest in, and make sure it’s aligned with your investor profile.

Equities are likely to generate the best returns in the long term, but they are also likely to be the most volatile of the asset classes. As data suggests, equities have historically produced returns above inflation by around 7% annually - over the long term (based on JSE All Share Index performance versus CPI from 1960-2020), but past performance does not guarantee future results. In order to potentially beat inflation, you would ideally look to include equities in your portfolio. Real estate may generate solid returns as well as provide a good hedge against inflation. Bonds, on the other hand, are more stable but may also generate lower returns. Cash is the most stable and liquid of the asset classes, but it will likely generate the lowest returns of all.

Diversifying across the asset classes helps to balance both capital preservation and growth. You may also consider diversifying offshore, as this may provide a hedge against any instability in the local South African market, as well as subsequent depreciation of the Rand. 10X offers a wide range of funds that you can choose to invest in within the living annuity wrapper. These funds include both local and offshore exposure. 10X also offers the opportunity to invest 100% offshore, an attractive option which may not be available through all service providers.

How to assess whether your current living annuity fees are too high

Understanding the fees you pay on your living annuity is incredibly important. Making use of a checklist such as the one provided below will help you to assess your living annuity’s fees:

1. Check your Effective Annual Cost (EAC): Always make sure that you are aware of all fees and costs being deducted from your living annuity, not just management fees.
2. Review advisor fees: Are you paying for advice but not actively using an advisor’s services? If so, these fees may be unnecessary.
3. Consider your investment strategy: Actively managed funds often have higher costs due to the research, trading and management activity. Ask whether these higher fees are delivering commensurate returns.
4. Evaluate transparency: Your fee schedule should be clear, simple and easy to understand with no hidden costs.

Going through this checklist can help you gauge whether your current fees are reasonable. If any of the above answers raise concerns, we suggest reviewing, evaluating and comparing service providers. 10X offers a cost-effective living annuity with a wide range of carefully curated funds to choose from, with fees for most of our retirement products sitting at 1% or less.

Why low-fee, index-based living annuities help income last longer

An index-tracking investment strategy is when the makeup of a benchmark index, such as the S&P 500, is mimicked in order to try and get the same returns. There may be fewer activities involved with this strategy, which may make it a more cost-effective option for investors, thus allowing for more returns to be reinvested and potentially allowed to compound and grow over time. This approach focuses on consistent returns over the long term. Remember, by reducing costs, investors can maximise the portion of returns that remain invested. This can be particularly important in retirement when withdrawals are being made.

In comparison, an actively managed style is where a fund manager would have the goal of picking the winning stocks. This approach will therefore involve more research, analysis and buying and selling. This may mean that there are higher costs involved, which may then be passed onto you as the investor in the form of higher fees.

Data from the SPIVA Scorecards suggests that index tracking may outperform active management most of the time. According to the latest SPIVA South Africa Scorecard (as of 31 December 2024), 60.84% of South African actively managed equity funds underperformed the S&P South Africa DSW Capped Index over the ten-year period ending 31 December 2024. This demonstrates the difficulty of outperforming the market and highlights the potential advantage of a low-cost, rules-based investment approach for retirees who need to preserve and grow capital.

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10X uses an index tracking investment strategy while also incorporating a more active approach to asset allocation. This allows us to keep fees low while still chasing the long-term returns our clients deserve. By combining the benefits of index tracking with selective asset allocation, as an investor, you can gain exposure to growth opportunities without having to worry about the high costs and risks of a fully actively managed strategy.

Final thoughts on living annuity fees

When it comes to structuring and managing your living annuity, fees are one variable that you have more control over. It is important that you focus on minimising your fees where possible and allow for potentially more returns to be reinvested and compounded over the long term. This will ultimately have an impact on the growth and sustainability of your living annuity for your retirement years. When you actively monitor your fees, review your investment strategy and ensure your asset allocation aligns with your risk tolerance, you can potentially protect your retirement income and make your savings last longer. You’ve earned your retirement, so don’t spend it on fees.

Get in touch with our skilled investment consultants for any queries surrounding the structuring of your living annuity to ensure that you are maximising the potential benefits and minimising your fees. Secure your future today with 10X.