Over the years I have worked extensively with clients who use life annuities as their safest option to ensure income through their retirement years — including the government employees pension fund (GEPF).
My main concern with this approach is that it limits the transfer of wealth once the annuitant passes.
Today I want to outline some of the risks and benefits attached to life annuities.
Life annuities are a cornerstone of retirement planning in SA, promising steady income for life.
Yet, many come with short guarantee periods — typically five or 10 years — and this undermines their role in building lasting generational wealth.
This hidden flaw means pension savings can vanish back to insurers, leaving families shortchanged.
The Guarantee Period Trap
A life annuity pays a fixed monthly amount until the annuitant’s death.
The guarantee period kicks in if death occurs early: payments continue to beneficiaries for that set time, say five years.
Sound reassuring? Not always. Shorter guarantees (under 10 years) are cheaper upfront, tempting retirees with higher initial payouts.
But they expose heirs to significant risk.
Consider a 65-year-old retiring with R5m in pension funds.
Opting for a five-year guarantee might yield R30,000 monthly.
If they die after three years, beneficiaries get just two more years of payments—R720,000 total.
The remaining R4.28m is forfeited to the insurer. No refunds, no inheritance.
Data from the Association for Savings and Investment SA (Asisa) shows over 60% of living annuities convert to life annuities with guarantees averaging five to seven years, amplifying this issue.
Why It Erodes Generational Wealth
SA families rely on pensions for multigenerational support amid high living costs and inequality.
Short guarantees accelerate wealth erosion: insurers retain billions annually from early deaths.
A 2023 FSCA report highlighted R15bn in unclaimed annuity residuals, much tied to inadequate guarantees.
This isn’t just financial — it’s emotional. Spouses and children face sudden income cliffs, forcing asset sales or debt.
Possible solutions
Opt for longer guarantees (15-20 years) despite slightly lower income — balance via joint-life options or inflation protection.
Hybrid products blending guarantees with lump sums preserve capital.
Consult a certified financial planner to model scenarios using tools like the Asisa annuity calculator.
Ultimately, short guarantees prioritise insurers over families.
Review your policy today. True wealth transfer demands foresight.
Blueprint Finance Brokers owner Scott Roebert has been a financial planner for 25 years, specialising in bespoke investments and retirement planning. You can find him on Facebook
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