Retirees should consider reducing drawdowns to give pensions greater longevity
Take advice about what the hotly anticipated tweaks to the legislation will mean for the longevity of your incomeIf you need to increase your income over the next four months you should do so with care. Picture: 123RF/ALEXANDER KORZH
“This is a temporary measure to assist individuals who either need cash flow immediately or who do not want to be forced to sell after their investments have underperformed,” says Wynand Gouws, a financial adviser with Gradidge Mahura Investments. When the proposed changes are gazetted it is expected that annuitants will be able to change their drawdown rate immediately instead of waiting until the anniversary date of their policy. This will mitigate the risk that comes with regular withdrawals when the capital value is down — as it will be now after large falls in global and local financial markets.
You can have more of an impact on the sustainability of your pension if you adjust your drawdowns permanently at your next anniversary, he says. Gouws says if you reduce your income to 5.5%, you can delay eating into your capital until 24 years after your retirement. This means your income will continue increasing for 30 years, until age 95.Anderson says anyone who is drawing 17.5% of their annuity and ups this to 20% will probably reach the point of ruin within a year.
In its comments on the proposed changes, the Financial Planning Institute of SA suggested that the lower drawdown rate of 0.5% should be retained indefinitely, as an extended period of low market returns is expected. It is not clear if this proposal will be accepted. Kop says the need for advice should not be underestimated and this arrangement would ease the administration burden on annuity providers.
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