It is ironic that as South Africa prepares to vote for 56 political parties in an election likely to take us into coalition politics, many SA retirees are electing a single retirement option that relies almost exclusively on Government delivering on its promises over the next 20-plus years.

The past year has seen a significant swing in the retirement vote from living annuities with no lifetime income guarantees, to life annuities that guarantee lifetime income increasing by 5% p.a. each year. Life annuity rates are at their highest in 20 years, driven by high long term interest rates.

“Electing this retirement option implies that retirees are confident that inflation will remain at 5% p.a. over their remaining lifetime, and that they are happy to put all their retirement eggs into a basket backed by Government and Parastatal bonds,” says Deane Moore, CEO of retirement income specialist Just SA.   

However, investment markets are flashing warning lights against this optimism. The yield curve expects inflation to rise to 7.5% in 10 years and 9% in 15 years, averaging 8% pa over the next 20 years. If this is right, a pensioner receiving a fixed 5% increase each year will see their income drop 30% in real terms over this period.

Nor is history an optimist.

Since 1990, inflation has exceeded 5% in 21 out of 33 years!

In the Retirement Election, retirees are given multiple votes on where to place their hard-earned nest-egg, to secure a diversified balance of guarantees, inflation protection and growth. Retirement voters shouldn’t think their vote is restricted to two options from traditional life insurance parties. Each person can build their own coalition of options to meet their specific needs in retirement.

A newly launched Enhanced With-Profit Life Annuity feature provides competitive lifetime income guarantees with annual increases linked to a diversified portfolio of assets, managed by leading asset managers. This combines the benefits of high Life Annuity rates, with retirement eggs spread around diversified baskets of assets.

And the Blended Living Annuity option that was introduced just 7 years ago, allows retirees to secure lifetime guarantees while retaining the freedom to choose assets focused on long term growth.

Both innovations were brought to market by Just SA, a company focused exclusively on retirement income, and part of the UK-listed Just Group. 

“Our focus is to innovate and create attractive options for retirees in South Africa. Every person is unique and should be able to choose from a competitive range of options to secure their retirement needs, both at retirement and as their needs change on their retirement journey,” says Moore.

Moore also strongly believes in the benefits of specialisation: “Retirees should be able to choose the specialist asset manager that drives their pension increases and not be forced to accept a single packaged solution from an insurer.”