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Annuity rates in South Africa |
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Some of the risks associated with purchasing annuity products are:
When buying an annuity policy you face the risk of the company no longer being able to pay you the annuity payments it owes, if it goes bankrupt.
Even if the company doesn't go bankrupt you are exposed to its level of administrative competence, in other words its ability to correctly calculate & pay you what it owes you on time.
If you buy a level annuity, then the real value of your income will decrease every year at the rate of inflation you're experiencing (if you're experiencing inflation of 5%, then every year you'll be able to buy 5% fewer goods & services, and for example after 10 years will only be able to purchase 61% of the goods you could at the outset).
If you buy an annuity increasing at a fixed rate then you run the risk of the inflation you experience being higher than that fixed rate, and the real amount of good & services you can purchase with your annuity payments decreasing.
Pensioner inflation is generally greater than lagged consumer price inflation, so even if you buy an annuity with inflation protection it will probably increase at a rate lower than the inflation you're experiencing (even with its issues, out of annuity products available in South Africa, those increasing at consumer price inflation provide the closest match to the inflation pensioners are likely to experience).
If you buy an annuity where your increases are linked in some way to the performance of financial markets, then you run the risk of low returns in those financial markets.
Here are 3 of the annuity products Sanlam provides:
Complete Picture Pension
Guaranteed Life Annuity
This is obviously a very limited subset of the annuity options which are out there - for instance it leaves out other companies and living annuities. It is up to you, the reader/client to research and decide whether there may be other better options for you.
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