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Paying lower fees on your living annuity could boost your financial position. Picture: 123RF/pabloavanzini
Paying lower fees on your living annuity could boost your financial position. Picture: 123RF/pabloavanzini

Few retirees realise that the fees they pay on their living annuity could well be their single biggest expense in retirement, says Michael Rossouw, senior investment consultant at 10X Investments: “A 2% fee, for example, on a R5m annuity amounts to more than R8,000 per month.” 

He adds: “Another game-changing factor that retirees often don’t know about is that switching to a low-cost provider could boost their financial position significantly without compromising their lifestyle at all.”

The problem, Rossouw says, is that few living annuity holders appreciate that their retirement savings are depleted by fees as well as what they draw down.

If you are drawing down at, say, 5% per year and paying fees of 2,5% per year (plus VAT), you are drawing down almost 8% per year. (Fees of 2,5% per year is the government’s estimate of the industry average, typically made up of 0.75% for advice, 0.25% for administration and 1.5% for investment management.)

Switching your living annuity to a low-cost provider could boost your financial position significantly without compromising your lifestyle at all
Michael Rossouw, senior investment consultant at 10X Investments

Rossouw says: “For the same level of drawdown (8%), you could reduce your fees by 2% and increase your income from 5% to 7%. That is a 40% increase in your income without any change to your overall savings balance.”

He explains further: “Assuming you draw down 5% from your R4,8m pension pot, you will receive a pretax income of R240,000, or R20,000 per month. At the industry’s average fee rate of almost 3% per annum you would be paying costs of about R144,000 per annum (R12,000 per month). 

“You would be paying yourself only two-thirds more than you pay your service providers. Or, from another perspective, almost 40% of your drawdown goes on fees.”

Moving to a low-cost provider such as 10X Investments, which charges less than 1% per year in fees, you could draw R28,000 a month and pay fees of R4,000. You are now receiving seven times more than your service providers, which seems a lot fairer.

But, Rossouw cautions, drawing down at 8% per annum will deplete your savings quite quickly. 

“The more prudent option,” he says, “would be to keep your income unchanged, and let the 2% per annum saving compound within your living annuity. This could add 5–15 years to the sustainability of your income (again, depending on your choice of portfolio and future market returns).”

Moving a living annuity to a different provider is a relatively simple process

To bring this to life for yourself, insert your own numbers into 10X Investments’ retirement income calculator. It will calculate what a sustainable income would be, taking your savings balance, your age, fees and inflation into account.

In addition to spending too much of your savings on fees, there are other good reasons to switch providers, such as bad service, poor planning tools or inappropriate investment choices. If you are in any doubt, ask 10X Investments to do a free, no-obligation cost comparison today to see if there is room for improvement in your living annuity.

Moving a living annuity to a different provider is a relatively simple process. You submit an application to your prospective annuity provider and give formal notice to the incumbent. The rest happens behind the scenes. If you are joining a low-cost provider, there should be no initial fee and no compulsory advice fees or platform fees.

Image: Financial Mail

Quiz the savings experts and stand a chance to win

July is Savings Month, so in that spirit, Financial Mail and 10X Investments have teamed up to answer your questions about savings — and we're rewarding you for thinking about saving too.

Not sure what the best way to save for retirement is? Want to know how unit trusts work? Trying to figure out how to invest without paying high taxes or service fees?

Tweet your savings and investment questions to @FinancialMail with the hashtag #JulySavings — or look out for our tweets calling for questions and reply — and you'll go into a lucky draw to win R1,000 worth of unit trusts from 10X Investments.

The best questions received will be answered by one of 10X Investments' experts and published on the Financial Mail website.

Competition terms and conditions 

  • This promotion starts at 9am on July 1 2022 and closes at midnight on July 31 2022.
  • This promotion is open to all South African residents who are in possession of a valid identity document as well as foreign nationals who can present their passport.
  • Any participant under the age of 18 years must be fully assisted by his/her legal guardian, who approves of, and consents to, the participant’s possession/receipt of the promotional offering.
  • Employees at 10X Investments (“the Promoter”), partner agencies/affiliated companies and members of their immediate family cannot participate in this promotion.
  • Members of the public who have submitted questions about savings and investments via social media will be entered into a prize draw to be awarded R1,000 in a 10X Investments unit trust.
  • One winner will be selected randomly on August 1 2022 from the list of eligible participants. 
  • A capital amount of R1,000 (one thousand rand) will be invested in a 10X Investments Unit Trust Portfolio of the winner’s choice.
  • A 10X Investments consultant will contact the winner telephonically within 48 hours of receiving confirmation from the promoter that the winner claimed their prize, to discuss the 10X Investments Unit Trust offering and to assist the winner with the application process.
  • If the winner does not proceed with the application process within 10 business days following the conversation with the 10X Investments consultant, the winner will forfeit the prize.
  • The terms and conditions of the 10X Investments unit trust will apply to the prize.
  • The standard 10X Investments fee structure shall apply to the prize. No upfront fees will be deducted.
  • The specifications of the promotion, including but not limited to duration and value, are at the discretion of the Promoter and are not negotiable. 
  • The Promoter reserves the right to alter or cancel the promotion at its own discretion. In the event of such cancellation or alteration, all participants shall waive and abandon any rights they may have against the Promoter, its affiliates or associated companies.
  • Participation in the promotion constitutes acceptance of the promotion’s terms and conditions.
  • The Promoter reserves the right to disqualify any online client questions if fraud or cheating is suspected.
  • The Promoter is not responsible for applications lost, damaged or delayed as a result of any network, computer hardware or software failure of any kind. 
  • In the event of any dispute, the decision of the Promoter is final. No correspondence will be entered into.
  • Neither the Promoter, its agents and its associated companies, nor any directors, officers or employees of such, shall be liable for any loss or damage, whether direct, indirect, consequential or otherwise arising from any cause whatsoever, which may be suffered by a participant as a result of participating in this promotion.

This article was paid for by 10X Investments.

The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment or other advice. 10X Investments is an authorised FSP (number 28250). 10X Index Fund Managers (RF) (Pty) Ltd is a Manager registered under the Collective Investment Schemes Control Act, 2002.