Retirement Insights | 2 min read

RELIEF MEASURES FINALISED: Temporary relief for living annuity clients

Government Notice 618 was published in the Government Gazette No. 43379 on 1 June 2020 (hereafter referred to as the new GN) and delivers the long-awaited COVID-19 tax relief measure that will allow annuitants who own a living annuity to adjust their income percentage temporarily.

A recap of the hard facts we shared recently:

  1. The relief period refers to 1 June 2020 – 30 September 2020 (subject to change by National Treasury).
  2. The income drawdown rates parameters for the relief period are 0.5% - 20%.
  3. GN290 of 11 March 2009, which determines the income drawdown rates parameters as 2.5% - 17.5%, has not been repealed and remains in force alongside GN 618.
  4. On 30 September 2020, GN 618 expires unless otherwise decided by the authorities before such time.
  5. All income drawdown rates will be calculated on the value of the underlying assets, net of costs, at the later date of:
    • Last anniversary date, or
    • Inception of the contract
  6. The annuitant’s anniversary date is not changed or amended by election in terms of GN 618 (which is applicable during the relief period only).

There is a difference from an implementation and results point of view between:

  • New living annuity contracts commencing during the relief period
  • Living annuity contracts with an anniversary date during the relief period
  • Living annuity contracts with an anniversary date outside of the relief period

Please refer to our comprehensive summary for more detail.

It’s important to consider the client’s needs and objectives, and remember:

  • An increased income drawdown will affect the long-term sustainability of the client’s living annuity income. This impact is amplified when taking a higher drawdown rate on depressed living annuity capital.
  • An increase in drawdown rate can increase the tax we have to recover and may result in a lower-than-expected after-tax income.
  • A reduction on income will allow depressed capital a better chance to recover. This will better preserve living annuity capital and increase the sustainability of living annuity income.
  • Holistic financial advice also entails reviewing the client’s total portfolio (including the client’s wellbeing, and factors like income and expenses) in deciding what the income drawdown should be.

Is there an alternative?

Sadly, reduced income is not a practical option for most clients despite the obvious benefit of preservation and the corresponding power of compounded interest. Consider whether this temporary relief is the most suitable option and whether this opportunity does not signify the necessity to consider alternative retirement income solutions such as combining traditional products to secure a guaranteed portion.

A short-term solution is not necessarily the correct way to address retirement income risks and now is the time to consider custom-made income stream management for each client. Talk to us at Glacier, we are the best enablers of optimal income stream management for retirees.

Should your client want to make use of the temporary relief, we are ready

We will be able to implement requested changes in line with GN 618 for all incomes payable as from 8 June onwards (income dates 8 June and later), where the income run has not been initiated yet. Should the annuitant draw income only from a money market account, we will assist with requests this week if possible.

You would have received an email from us earlier this week, where we attached our ‘Special Revision of your Living Annuity Income’ form which is referred to in the supporting documentation. This form will be available on the transactional web as soon as possible.

Please refer to our comprehensive summary for more detail on the implementation at Glacier. There is also a Frequently Asked Questions document available and you can contact your Glacier representative or our Client Communications team, should you have any queries.

Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers

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