The key rules governing your 10X Living Annuity

10X is pleased to announce the launch of its Living Annuity. Post-retirement investing is fraught with complexity and pitfalls, which is why we offer a clear and simple solution, using the same approach (and the same portfolios) that work so well for our retirement products.

Key features of the 10X Living Annuity

Low fees: Our fees are less than half the industry average. Our fees are a maximum of 0.86% p.a. (incl. VAT).

Access to reports: Our reporting is simple, transparent and complete. You will have access to your current fund value (updated monthly) via our web portal which you can access at any time.

Relevant tools: We give you tools to project the potential impact of your drawdown rate, investment choice and fees.

Direct: You deal with us directly so there are no brokers or commissions. The cost of commissions and broker fees compounded over many years greatly diminishes your long term fund value.

Index investing: Our portfolios are indexed because index funds beat most professional managers.

Please refer to our previous blog, choosing your living annuity, on the factors you need consider in selecting your living annuity product. In summary, these are your annual draw-down rate, the fees you pay and your mix of assets (shares, bonds and cash).

What is a living annuity?

In another previous blog, we compare living annuities versus guaranteed annuities.

A living annuity is essentially an investment product that pays you an income from your retirement savings. You have the flexibility to choose your income each year (subject to regulatory limits) and how your money is invested. However, in exchange for this flexibility, you take on the risk that you outlive your savings and the risk that your investment returns are poor. This means that your future income could fail to keep up with inflation, or even that you outlive your savings.

How does the 10X Living Annuity work in practice?

Below, we highlight some of the important terms and conditions that relate to living annuities in general, and to the 10X Living Annuity in particular.

Your annuity income: Your may specify your annuity income as a rand amount or as a draw-down rate. Your draw-down must be between 2.5% and 17.5% of your investment balance (net of fees) per year. This percentage is calculated on the value of your living annuity at the policy date (the date your living annuity becomes effective) and on subsequent policy anniversary dates. You can change your income at every policy anniversary date.

Frequency of payment: You can elect to receive your income monthly (in arrears), or quarterly, six-monthly or annually (in advance). You can change this frequency at every policy anniversary date.

Tax implications: You do not pay tax on the amount transferred from your retirement fund to a living annuity. You also do not pay tax on the investment return you earn in your living annuity (capital growth, interest and dividends). However, your annuity income, including any cash lump sum commuted by you, will be taxed according the prevailing income tax tables. Your income is paid out net of this tax.

Permitted transfers: A living annuity can only receive transfers from a retirement fund or another living annuity (with a minimum initial transfer of R750 000). You may transfer to a living annuity or to a guaranteed annuity offered by another provider. However, you cannot split your living annuity between two or more providers. If you are transferring an existing living annuity to 10X then the policy anniversary will be that of your original policy. Your annuity income and payment frequency will remain the same until the next policy anniversary date when you can make changes.

Additional contributions: You can add proceeds from other retirement funds to your existing 10X Living Annuity. You can then choose to leave your annuity income unchanged or to increase it proportionally, based on your existing draw-down rate. You may not make a voluntary contribution to your living annuity but you can route such contributions through a retirement annuity fund, followed by an immediate transfer to a living annuity. Transfers from another living annuity must – by legal requirement – be invested in a separate policy.

Your investment portfolio: You can chose to invest your 10X Living Annuity in either the 10X High Equity, Medium Equity or Low Equity portfolio. You are allowed to switch between these portfolios up to four times per year.

Fees: You pay just one policy fee, which covers investment management, administration, reporting and the provider’s fee. The policy fee is set at a maximum rate of 0,86% pa (incl. VAT) falling for amounts over R5m. You pay no other fees for the 10X Living Annuity.

However, if you use the services of a financial adviser you can instruct 10X to pay the adviser out of your policy at an agreed rate which may not be more than 1% pa (excl. VAT) of your investment balance. You may change or cancel this fee if you wish.

Your residual value: Any residual value in your living annuity after your death is distributed to your nominated beneficiaries. The amount does not form part of your estate. Your beneficiaries can elect to receive the residual value as a lump sum (in which case Retirement Lump Sum tax is deducted prior to the pay-out) or they can transfer it tax-free to another annuity product (in which case they will pay income tax on the annuity income).

Policy termination: Your policy ceases on your death or if you transfer to another living annuity provider. If your balance at any time falls below the amount prescribed by the Income Tax Act (currently R75 000 or R50 000 if you took a cash lump sum at retirement), you may withdraw the balance. Your policy will terminate on this withdrawal.

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