Clearing up confusion about annuity products
The following questions were answered in response to an IOL Personal Finance article:
Can you outline the procedure involved in transferring/converting from a living annuity to a life annuity with a different provider?
The client/adviser must notify the LISP of intention to transfer out of the living annuity. This is usually accompanied by a signed quote and application form from the life annuity provider. The transferring LISP drafts a set of annexures which is sent to the receiving insurer, who in turn also drafts a set of annexures. Both sets of annexures must be signed by the client.
What transfer costs are involved?
None. Directive 135 (or its equivalent) stipulates that there can be no costs associated with transfer of a living annuity to a life annuity. An adviser can charge a fee, but it should be invoiced separately and settled by the client.
Can you convert just a portion of the living annuity to a life annuity or must it be the entire amount?
No, you cannot transfer a portion of a living annuity to a conventional life annuity. However, if you transfer the full amount to a living annuity where a life annuity is available as a portfolio (often referred to as a blended living annuity offered by some product providers), you can allocate a portion of retirement assets to the lifetime income portfolio in tranches at any time.
Can you do this at any time, or must it be on the anniversary of the annuity?
It does not depend on the anniversary of the living annuity. However, it may be worthwhile to align it to annuity payment dates.
How long does it take?
The timing of the process varies between providers and depends on other factors (e.g. delays in tax directives or the signing of annexures). The best case scenario is 2 – 4 weeks, but it can take around 8 weeks.
If the provider with which you have the living annuity also offers a life annuity, is this process easier and less time-consuming and costly?
Not necessarily. The process still needs to follow the same steps.