Enhanced Annuities. Contact us at 1

Transcription

1 This brochure gives a brief explanation of Just Retirement Enhanced Annuities, all of which provide a guaranteed income for life. It explains who may qualify for a higher retirement income from this product compared to standard Guaranteed Life Annuity products, and what options you may choose from. This brochure provides information and not advice if you require advice, you should contact a financial adviser, or the person assigned by your retirement fund to provide advice. Why consider a Just Retirement Enhanced Annuity? When you reach retirement, you can choose between two broad annuity types that will pay you an income in your retirement: Guaranteed Life Annuities, which guarantee you an income for your remaining lifetime that may increase depending on the rules of the product that you choose. These products are designed for those who need a guaranteed level of income to pay recurring monthly expenses such as rent, groceries, water and electricity, health care, transport and insurance. Investment Linked Living Annuities, which have no guarantees and pay out a portion of your retirement savings each year. These products are designed for retirees who have substantial savings after meeting their recurring monthly expenses, or have a severe terminal illness, mainly for the purpose of transferring retirement fund assets to their dependants on death, or for managing tax over their retired lifetime. However, the standard Guaranteed Life Annuities in the market do not always price for important individual client differences. Large players in the annuity market rate individual purchasers only by age and sex expensive for the poor and sick, who may either subsidise the rich and healthy if they purchase annuities or be excluded from the market entirely (Enabling a better income in retirement, National Treasury, 21 September 2012). As a result, even people who do not have substantial savings, nor are terminally ill, have chosen to take Living Annuities. National Treasury is concerned that most South Africans who purchase living annuities face a substantial risk of outliving their assets (Enabling a better income in retirement, National Treasury, 21 September 2012). But a Just Retirement Enhanced Annuity gives you the option to purchase a guaranteed income for life that is priced fairly, based on your individual circumstances. This means you may qualify for a higher guaranteed income for life than a standard Guaranteed Life Annuity provides. Contact us at info@justretirement.co.za 1

2 Understanding the Just Retirement Enhanced Annuity Over 1500 medical, socio-economic and lifestyle factors either individually or in combination could qualify you for a Just Retirement Enhanced Annuity. These include: medical factors such as heart attacks, cancer, and significant cholesterol levels socio-economic factors such as household income and formal educational training lifestyle factors such as alcohol consumption and smoking. If you have suffered penalties and extra loadings for life insurance during your working career due to your health or lifestyle factors, it is only just that you should be compensated for this when you are receiving retirement income. You deserve a just retirement. A Just Retirement Enhanced Annuity takes into account your state of health, socio-economic and lifestyle factors, as well as age and gender to determine your life expectancy, and therefore the amount of retirement income that can be guaranteed for life. Just Retirement will prepare an Enhanced Annuity quotation specifically for you. You will need to complete a short questionnaire about your state of health and lifestyle, and the information on this questionnaire will be used to determine your annuity amount. If you qualify, your retirement income may be higher than that offered by a standard annuity. Please see our separate brochure on A few case studies of people who qualify for enhanced annuities, higher guaranteed income for life, from Just Retirement. Appendix A, Annuity types, explains how Just Retirement Enhanced Annuities fit into the full spectrum of annuity types. Appendix B answers frequently asked questions. Contact If you would like further information on securing a just retirement, please contact us at info@justretirement.co.za Please see our separate brochure on A few case studies of people who qualify for enhanced annuities, higher guaranteed income for life, from Just Retirement. Visit 2

3 Appendix A: Annuity types At retirement date, if you have been contributing to a defined contribution pension fund, you are required by law to buy an annuity with at least two thirds of your total retirement savings. You can select from a range of annuity types: Investment Linked Living Annuities (ILLAs) Guaranteed Life Annuities, which Just Retirement offer as Enhanced Annuities. You have the option to purchase different increase profiles: Level Annuities Fixed Escalation Annuities Inflation-Linked Annuities With-Profit Annuities. How these vary from each other, and the advantages and disadvantages of each, are summarised here: Investment Linked Living Annuities These products are designed for those who have substantial savings after meeting their recurring monthly expenses, or have a severe terminal illness, mainly for the purpose of transferring retirement fund assets to their children on death, or for managing tax over their retired lifetime. A Living Annuity allows you to choose your own investment portfolio and draw a percentage of your annuity assets each year (subject to minimum and maximum limits) as retirement income. It also has a death benefit where the remaining balance of the assets is paid to your nominated beneficiaries on your death. The flexibility offered by a Living Annuity can be appealing, but there is no guarantee that your income can be maintained at the current level for life. In fact, it will reduce, possibly significantly, if: you live for longer than expected; there is a crash in the market that reduces the value of your investment portfolio; or you draw a percentage of assets as monthly income that is unsustainable over your lifetime. However, if you are already in a Living Annuity, you are not obliged to remain in this type of annuity you have the option to change to a Guaranteed Life Annuity (including a Just Retirement Enhanced Annuity) at any point before you reach the age of 85. Guaranteed Life Annuities (which Just Retirement offer as Enhanced Annuities) These products are designed for those who need a guaranteed level of income to pay recurring monthly expenses such as rent, groceries, water and electricity, health care, transport and insurance. In contrast to Living Annuities, Guaranteed Life Annuities provide a guaranteed income for life and depending on the type selected, guaranteed annual increases to your monthly income. The insurer carries the full risk of the investment performance, except in the case of a With-Profit Annuity where the insurer and you share some of the risk and return. Guaranteed Life Annuities differ based on the type of annual increase: With Level Annuities you elect to have a fixed or level amount of income paid out every month. This allows for a high rate of income at the start of the annuity, but without an annual increase in place, inflation will erode the buying power of the income over time. At 6% inflation per annum, this means that your purchasing power will be halved over 12 years. These products are designed for the very few people whose expenses are relatively fixed in retirement, or who have another way of protecting themselves against inflation (for example, substantial other forms of savings). With Fixed Escalation Annuities you select the percentage, for example 5%, by which your annuity payment will increase annually, and the annuity will continue to increase by this percentage every year for as long as you live. Here your greatest risk is that inflation increases significantly above the 5% per annum for which you are covered. In selecting this option your initial monthly annuity amount will be less than if you selected a level annuity. These products are designed as a potentially cheaper way of obtaining partial protection against inflation if full protection cannot be afforded. Inflation-Linked Annuities give you guaranteed future increases in line with Consumer Price Index (CPI) inflation. These annuities offer full protection against consumer price inflation. However, the inflation which you experience depends on how your regular expenses increase relative to CPI. For example, for a number of years, medical inflation has been much higher than CPI. These products are designed to offer protection against a commonly used measure of inflation. Contact us at info@justretirement.co.za 3

4 Appendix A: Annuity types With-Profit Annuities provide a guaranteed income for life, which is increased every year through participation in future investment and mortality profits. Once declared, pension increases cannot be taken away and pensions will never decrease. These products are designed to offer exposure to investment markets, as a potentially cheaper means of targeting increases that are hoped to keep pace with inflation. Your financial adviser can advise you on how the track record of these products, when purchased at a particular post-retirement interest rate, compares to CPI. It is important to remember that investment markets can go up as well as down: if markets go down, your income will not reduce, but your future increases may be less than anticipated at inception. Annuities at a glance The following table sets out the risks which you face in retirement and whether the particular annuity type provides cover for those risks: Risks Living longer than expected Priced using your health/lifestyle factors Investment return less than expected Inflation Living Annuity Guaranteed Life Annuities Level Fixed escalation Inflation linked With profit Just Retirement Enhanced Annuities Level Fixed escalation Inflation linked No Yes Yes Yes Yes Yes Yes Yes Yes No No No No No Yes Yes Yes Yes With profit No Yes Yes Yes Partial Yes Yes Yes Partial No No Partial Yes Partial No Partial Yes Partial Any person at retirement should carefully consider all the types of annuities available. You will want an annuity that is fair and just and that provides you with the best possible retirement income and protection against the various risks set out in the table. This brochure provides information and not advice if you require advice, you should contact a financial adviser, or the person assigned by your retirement fund to provide advice. Visit 3

5 Appendix B: Frequently asked questions What is an Enhanced Annuity? What are my options? An Enhanced Annuity is a life insurance product purchased with qualifying retirement savings*. An Enhanced Annuity gives you a guaranteed income in the form of a series of regular payments for the rest of your life. *What are qualifying retirement savings? Retirement savings from the following sources can be used to purchase an annuity: Pension/Provident Fund Preservation Fund Retirement Annuity Living Annuity (ILLA: Investment Linked Living Annuity). How will it work for me? You will receive a personal quote which shows how much income you could receive based on an assumed value of your total retirement savings. So if the actual value of your retirement savings is higher or lower than the amount displayed in your quote, the amount to be paid monthly will be higher or lower. Should you decide to buy an Enhanced Annuity from Just Retirement you should request that your retirement savings be paid to us by the company that currently administers these retirement savings. Your financial adviser will assist you with this request. Should you be purchasing an annuity with your retirement savings from your retirement fund, your savings may be subject to tax and tax legislation and the specific rules of your retirement fund will determine what options are available to you. Should you be transferring your retirement savings from a living annuity the transfer will be tax neutral (i.e.) there will be no tax implications. The full investment value of the living annuity at the date of transfer will be available to purchase an Enhance Annuity. You have a range of options: To use the whole of your qualifying retirement savings to buy an annuity for the rest of your life; To take a tax-free lump sum from the fund directly (if the rules of your existing pension allow this) and use the remaining savings to buy an annuity for the rest of your life; To start off with a lower retirement income which increases each year by a fixed percentage (Fixed Escalation Annuity); To start off with a lower retirement income which increases in line with inflation, but will not decrease. This helps you to protect your purchasing power (Inflation Linked Annuity); To start off with a lower retirement income which increases in line with the investment performance of a with-profit fund, but will not decrease (With Profit Annuity); To take a lower retirement income for yourself in exchange for a spouse s pension if you die before your spouse; To start off with a lower retirement income but with a guarantee that it will be paid for an agreed number of years (for example, five years) even if you die before then. Contact us at info@justretirement.co.za 4

6 Appendix B: Frequently asked questions How is an Enhanced Annuity different to a standard Guaranteed Life Annuity or Conventional Annuity? A standard Guaranteed Life Annuity or Conventional Annuity works the same as an Enhanced Annuity, except in the way the monthly retirement income is determined upfront. Both take account of your age and gender. However, an Enhanced Annuity is different, because it also takes account of your personal health, socio-economic and lifestyle factors. How is an Enhanced Annuity different to an Investment Linked Living Annuity (ILLA)? An Enhanced Annuity gives you a guaranteed income for life. An ILLA allows you to choose your investment portfolio and to draw income from your retirement savings pot within certain limits, but does not guarantee you an income for life. How long do I have to make up my mind? The quote from Just Retirement is valid for 14 days. If we receive the completed application form and funds from the administrator of your retirement savings after the quote has expired, we will recalculate your income at the prevailing interest rates. If the revised annuity amount reduces by more than 5% because of this, we will immediately send your financial adviser a revised quote, which will also show how long you have to make your decision and will ask if you still want to go ahead. What should I do if I want to see other quotes? If you would like further details on any of the other options mentioned here, your financial adviser can give you additional quotes. How do I decide which option is right for me? Your financial adviser can give you quotations to show you how much income you could receive under each option. The options listed above will each provide a different amount of retirement income. You should take this into account and consider it in the light of your needs and personal circumstances, such as your health and that of your spouse. It is important to get advice from your financial adviser when choosing an option. If I choose to go ahead with Just Retirement, is my decision final? Once we have received your signed application form and your purchase amount, and the Enhanced Annuity has been set up, the decision will be final. The policy cannot be cancelled and you will not then be able to change your mind. Visit 4

7 Appendix B: Frequently asked questions What legal framework governs annuity payments? All income will be paid in line with current long-term insurance legislation and rules laid down by the South African Revenue Service (SARS). Contact If you would like further information on securing a just retirement, please contact us at info@justretirement.co.za What service will Just Retirement provide? Just Retirement will: guarantee to pay your Enhanced Annuity for the agreed amount on a monthly basis for the rest of your life or for the guarantee period (if you selected this option at inception) if this is longer; increase the Enhanced Annuity payment by the appropriate amount each year, if you selected this option at the start; pay an income to your spouse in the event of your death, if you selected this option at the start. (This will start from the end of the guarantee period, or your month of death if later); and account for tax at the appropriate rate based on your personal tax status and issue an annual tax certificate. Contact us at info@justretirement.co.za 4