The one thing an investment linked living annuity (also known as a living annuity, or illas) does not do is give pensioners a secure income flow. Few pensioners are likely to be financially secure until death. The advent of Covid-19 and the junking of South Africa’s debt makes it far worse when share prices and dividend payments drop.

Most living annuity pensioners had already received a serious body blow even before the virus and the downgrade of South Africa’s debt, with many already having high drawdowns. Despite this, 90% of South African pensioners want living annuities on which to retire, while at the same time research undertaken by Sanlam and Just SA finds that 87% of retirees want security of income.

Retirees cannot expect security of income if they invest in living annuity. The only way to achieve this is through buying a guaranteed annuity. You need to compare living annuities and guaranteed annuities very carefully if you want guarantees.

Historically, living annuities and traditional annuities have both been subject to their own controversies. Way back in the 1970s, Sir Donald Gordon, fed up with the unfair selling of investments to policyholders by life assurance companies, set up a new way of selling investments, namely linking the return to actual underlying investments; and he started what was the Guardrisk unit trust company as one of the choices.

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