Securing the Rands, not the rates

Annuity rates may fluctuate, but they do not operate in isolation. Income at retirement is determined by the size of the pot and the rate applied to that pot. And in today’s environment, the pot is what matters most.

When planning for retirement, the focus should be on the value of the capital accumulated (the rands) rather than the prevailing annuity rates. Over the past 12 to 18 months, many advisers and investors have been cautious about moving into life annuities, largely due to a softening in annuity rates. However, this perspective overlooks a crucial factor: the ultimate income at retirement depends on both the size of the retirement pot and the rate applied to it.

Although annuity rates have come down as long-term yields declined from their highs since May 2024, the capital gains experienced over the same period have more than compensated for this. Balanced portfolios have performed well, resulting in significant growth in retirement savings. This increase in portfolio values has created a timely opportunity for retirees to bank market gains into a guaranteed, lifelong income.

Even with lower annuity rates, retirees invested in balanced funds are able to secure more guaranteed income now than they could 12 months ago. In fact, current conditions mean that retirees can start with up to 7% higher income compared to January 2025, despite the rate drop.

Source: Just SA

Rates should be considered alongside a client’s retirement fund value at the point of purchase.

Why focusing only on annuity rates can be misleading

A lower headline annuity rate does not necessarily mean a lower lifelong income. Key reasons include:

• Market and yield movements are inversely correlated: When annuity rates fall, it is often because markets have risen, meaning clients have more capital to annuitise.
  
  
• Portfolio performance drives outcomes: Pensioners with high recent returns can secure a higher guaranteed income for life today than when rates were higher, but markets were weaker.
  
  
• Not representative of the full economic return over a lifetime: Two important elements are not visible in the starting annuity rate: survival credits (bonus for living longer than the average) and expected increases over time (fixed, inflation-linked or investment returns-linked). When considering the value of a life annuity to the customer over their lifetime, you should not look at the starting annuity rate in isolation, but also include the chosen escalation rate as well as the survival credits. 

Now is a good time to lock in growth as guaranteed income

The value of retirement savings is the first and most important input in determining the income a client can lock in today. The investment growth seen since 2025 has created a powerful opportunity. Locking in this growth, even a portion of it, can guarantee more income for life by:

• Converting market gains, that are by nature temporary, into permanent, guaranteed income.

• Eliminating future market downside risk.

• Turning volatile returns into stable, lifelong income.

Take the growth while it’s on the table — and secure it for life.

Download a PDF version of this Adviser Newsnote

Disclaimer: The information contained in this document is for information purposes only and it should not be regarded as advice as defined in the Financial Advisory and Intermediary Services Act 37 of 2002, or any form of advice in respect of the policy, retirement, tax, legal or other professional service whatsoever. You are encouraged to seek advice from an authorised financial adviser, or to independently decide that the policy or financial product is appropriate for you based upon your own judgment and understanding of your financial needs. Just Retirement Life (South Africa) Limited is a registered life insurance company, regulated by the Prudential Authority of the South African Reserve Bank and the Financial Sector Conduct Authority as an authorised financial services provider (FSP no. 46423). Additional information about Just, our products, including brochures, application forms and fund fact sheets, can be obtained from Just and from our website: www.justsa.co.zaThis document and the information contained within are the sole property of Just and any reproduction in part or in whole without the written permission of Just is strictly prohibited.