The effects of Covid can be felt all around and people in Retirement with most of their funds in investment markets are no different.
For that reason the government changed some of the rules on Living annuities. The following changes have been made:
Previously you could withdraw a percentage of between 2.5% to 17.5% per year on your living annuity value.
The income limits have temporarily been changed to a minimum of 0.5% to maximum of 20% of the living annuities value at its last income review date.
The increased or decreased income will only apply to income payable during the period 1 June to 30 September 2020 and will revert back to the original income amount from October 2020.
These changes aim to provide temporary relief to clients who want to reduce their income so they are not forced to sell their living annuity investments that have underperformed. In requesting a lower income, they can protect their investments from the effect of the COVID-19 pandemic on investment markets.
It also assists clients who temporarily need higher cash flow from their living annuity. However, increasing the level of a living annuity income under current market conditions should be considered carefully. Not only will it affect the investment value now and in the short term, but it will also have a longer-lasting effect on the living annuity’s investment portfolio, as well as its income-generating capability, when income levels revert back to the standard limits and markets start to recover.
Commutation(full withdrawal) Values
Another change that has been made to living annuities is that full withdrawal minimums have been raised:
R50 000 or less, if any value of the annuity or any part of the retirement interest was previously commuted for a single lump sum payment; or
R75 000 or less, in any other case.
From 1st of June these minimums have been replaced with a single threshold of R 125 000.
If the value of a client’s living annuity at any point is less than this amount, the client can request a commutation on the contract, subject to a tax directive from the South African Revenue Service (Sars). If there is any further questions or you want to make use of this change, please contact your Bovest financial advisor.
PJ Botha CA(SA), CFP ®