Adviser Newsnotes

Recent market conditions have created a combination of factors that could see your client lock in significant gains if they buy a life annuity now. And given ongoing uncertainties resulting from the Covid-19 pandemic, this is also a good time for clients to secure an income that will be guaranteed for life, regardless of fluctuations in investment markets. 

A blended annuity allows annuitants to structure a suitable combination of guaranteed and flexible income. Ideally, the guaranteed portion of the blended annuity should give a retiree sufficient monthly income to cover the basic cost of living.

Just SA created a framework to help you calculate – for an individual client – how much to allocate to the life annuity component based on their profile, so that the guaranteed portion of their retirement income will indeed be enough to cover their essential expenses.

Many people rank the need for certainty that their retirement income will last as the most important consideration - a key feature of a life annuity. However in practice, majority choose to defer annuitisation or not to annuitise at all. Why do retirees do the opposite to what they articulate as being important, and what is deemed optimal in retirement?

Different assets within a retirement portfolio should ensure there is always something working on your client’s behalf. Just Lifetime Income's (JuLI's) is one of these assets and due to its nature, its true benefit is typically only revealed over a long period of time. In the short-term however, it helps to measure JuLI against what it set out to do.

With the cost of living continually escalating, the ability to secure inflation-beating annual increases on retirement income is a recurring challenge, especially in a volatile, low-return investment environment.

Just announced its 2021 with-profit annuity increases that comfortably beat inflation, benefitting pensioners with a much-needed boost to their retirement income. The StatsSA average year-on-year inflation over the last 12 months is 3.4%, and Just’s with-profit annuity provides its pensioners with an increase of between 4% and 8% in 2021, depending on the product selection.

Comparing the starting income of with-profit annuities to non-profit annuities only considers part of the picture and should not be used in isolation when assessing the relative value of these two annuity products. When comparing the value of an annuity, you should consider two main aspects together: starting annuity on day one and expected future increases and increase potential over the long term.

This note aims to show how starting annuity income on its own is not a sufficient measure of value for guaranteed annuities. A guaranteed life annuity’s value is the sum of its starting income and the expected future increases over a long-term investment horizon.