What You Will Learn From This Article

• When you must buy an annuity, and when you can take cash instead
• How the 2.5% to 17.5% drawdown limits work, and what retirees actually draw
• When you can withdraw the whole balance, including the new R150,000 limit
• How the income is taxed, and what your beneficiaries receive when you die
• How fees quietly erode retirement income, and how to move to a cheaper provider

A living annuity is an investment-linked income product. When you retire, your retirement savings stay invested in funds you choose, and each year you decide how much income to draw from them. Unlike a guaranteed annuity, nobody promises that the money will last. You carry the investment risk and the risk of living longer than you planned for, which is why understanding the rules and the costs matters before you commit.

How the Drawdown Limits Work

You may draw between 2.5% and 17.5% of the remaining capital each year. You choose the rate when you start, and you can change it once a year, in your policy anniversary month. The limits exist to stop you spending your capital too quickly, but a legal maximum is not a safe rate. ASISA’s guidance is that prudent drawdown rates are 4% to 5% in the first decade of retirement and below 8% in the later years.

Retirees have been moving in that direction. ASISA reported that the average drawdown rate for 2024 was 5.6%, the lowest since it began collecting living annuity statistics. At the end of 2024, there were 554,043 living annuities holding R781.7 billion, and 36.4% of those assets sat in the most conservative 2.5% to 5% income band. A rate in that band is not automatically right for you, but it shows where most prudent retirees are landing.

When You Can Withdraw the Whole Amount

You generally cannot take lump sums from a living annuity beyond your chosen drawdown. There are two situations in which the whole balance can be withdrawn:

• When the balance is small. The commutation limit for living annuities rose from R125,000 to R150,000 on 1 March 2026. It applies to living annuities only, not to guaranteed life annuities. A draft 2026 tax bill proposes to confirm in the legislation that the limit is calculated cumulatively when you hold several living annuities with the same insurer or fund, which is how SARS has reportedly been applying it already. As this is a proposal, check its status before relying on it.
• When you die. Your beneficiaries can claim whatever remains, whatever the amount.

How the Income Is Taxed

Interest, dividends and capital gains inside the living annuity are not taxed. You pay tax only when you draw income, and it is taxed as normal income at your marginal rate under PAYE. If you are 65 to 74, the tax threshold for the 2026/27 tax year is R153,250, so a living annuity income below that, with no other income, attracts no tax. Because income is added to any other earnings, higher drawdowns can push you into a higher tax bracket.

What Happens When You Die

Your nominated beneficiaries have three choices: take the balance as a lump sum, keep the annuity going in their own name, or do a mix of both. A lump sum is taxed under the retirement lump sum table, where the first R550,000 is tax-free (less any amount already used up on earlier retirement lump sums). If the beneficiary continues the annuity, the income is taxed at their marginal rate, which may be lower than yours.

Two providers explain that where you have nominated beneficiaries, the proceeds sit outside your deceased estate, so there is no estate duty and no executor’s fees, which can be as high as 3.5% plus VAT. If you have not nominated anyone, the money falls into your estate. These providers sell living annuities, so confirm how this applies to your situation with an estate planner. Review your nominations after marriage, divorce or the birth of a child.

What It Costs: Fees and Competition

Three layers of cost apply to a living annuity: the administration or platform fee, the investment management fees on the funds you choose, and any adviser fee. You can already buy a living annuity directly from several investment providers without an adviser, so you can choose how much advice you pay for. As one published example, Sygnia charges an administration fee from 0.4025% a year on balances up to R2 million, plus fund fees, while its maximum adviser fees are 3.45% initially and 1.15% a year. The adviser layer can dwarf the platform fee, so ask for the total annual cost expressed as a percentage across all three layers.

The impact compounds. In one illustration from 10X Investments, a R2 million balance drawn down at 4% over 25 years, assuming 12% annual returns, ends at about R2.36 million in real terms with 0.86% total fees but about R1.45 million with 3% fees. Those figures rely on 10X’s own assumptions, which are optimistic, and 10X sells low-cost products, but the direction is the point: a few percentage points of fees can cost a retiree hundreds of thousands of rand over a long retirement.

If you are unhappy with your provider’s fees, you can transfer your living annuity to another provider under Section 37 of the Pension Funds Act without income tax or capital gains tax, as long as it moves to another registered living annuity under the same withdrawal rules. Check both providers’ exit and administration charges first.

What Changed in the 2026 Budget

• The annual retirement contribution deduction cap rose from R350,000 to R430,000
• The threshold for taking all your retirement savings as cash rose from R247,500 to R360,000
• The living annuity commutation limit rose from R125,000 to R150,000
• The annual tax-free savings account limit rose from R36,000 to R46,000, although the lifetime limit was not adjusted

Rules, thresholds and tax tables change, so revisit your retirement plan at least once a year. Our retirement annuity calculator can help you estimate income, and our guide to living annuity asset allocations explains how to position the portfolio inside it.

Key Takeaways

• At least two-thirds of your retirement savings must generally buy an annuity, unless your total is R360,000 or less
• You choose a drawdown between 2.5% and 17.5% of remaining capital, adjustable once a year, but prudent guidance is 4% to 5% in the first decade
• The whole balance can be withdrawn only when it falls below R150,000 or on your death
• Income is taxed at your marginal rate, while growth inside the annuity is tax-free
• Nominated beneficiaries can take cash or continue the annuity, and the proceeds generally sit outside your estate
• Fees across platform, fund and adviser layers matter enormously over 25 years, and you can switch providers tax-free

Frequently Asked Questions

What is a living annuity?

A living annuity is an investment-linked retirement income product. Your retirement savings stay invested in funds you choose and you draw between 2.5% and 17.5% of the balance each year. There is no guarantee that the money will last for your lifetime.

How much can I draw from a living annuity?

Between 2.5% and 17.5% of the remaining capital each year, set when you start and changeable once a year on your policy anniversary. ASISA describes 4% to 5% in the first decade of retirement, and below 8% later, as prudent.

Can I withdraw all my money from a living annuity?

Only when the balance falls below R150,000 (the limit from 1 March 2026) or when you die. Otherwise you are limited to your chosen drawdown rate.

What happens to my living annuity when I die?

Your nominated beneficiaries can take a lump sum, continue the annuity in their own name, or split the balance. Lump sums are taxed under the retirement lump sum table, and income is taxed at the beneficiary’s marginal rate.

Is a living annuity better than a guaranteed annuity?

It depends on your capital, health, income needs and willingness to manage investments. The Actuarial Society of South Africa says most retirees are better served by a guaranteed or hybrid annuity, while living annuities suit those with ample capital, financial sophistication or shorter life expectancy.

Can I move my living annuity to a cheaper provider?

Yes. You can transfer to another registered living annuity under Section 37 of the Pension Funds Act without income tax or capital gains tax, provided the same withdrawal rules carry over. Check any exit or administration fees first.

Get Advice Before You Decide

Choosing your annuity structure, drawdown rate and provider shapes your income for decades. We recommend speaking to an authorised financial planner, and asking them to show you the total annual cost of any product they propose.

This article was researched and drafted with the assistance of AI tools, using the sources credited in the production notes below, and reviewed for accuracy before publication. Thresholds, tax tables and legislation change frequently and a draft bill may not become law. This is general information, not personalised financial or tax advice; please consult an authorised financial planner before making retirement decisions.