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Can I draw three months’ payment in a month from my living annuity?

Since this is the anniversary month of your annuity you can elect for the drawdown to be paid annually, which would provide you with the liquidity you need – but there are a few things to be aware of.

I have a living annuity with a company, and it is my anniversary month in which I am allowed to withdraw. Unfortunately, I have been unemployed for over a year and had part of my foot amputated. I need extra money to pay people that I owe. I asked the company if they could pay me an income on a monthly basis, however, I asked them for three months’ payment in the first month and thereafter from the second month they can pay me the normal amount. I told them that I understand that for the last two months I won’t get any income. Is it possible for them to pay me in that way? They declined. I am still taking out the same amount of money for the year but basically asking for extra in the first month so I can pay people I owe money to. Please let me know.

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Thank you for your question relating to living annuity drawdowns. Living annuities are governed by the Long-term Insurance Act, and in a living annuity structure the legislation permits you to draw an income from your living annuity between 2.5% per year and 17.5% per year of the value of the residual capital. The only time you may withdraw the full amount of your living annuity is once the value of your living annuity drops below R125 000.

The annuity income forms part of your taxable income. You can choose to draw down this percentage on a monthly, quarterly, bi-annual or annual basis, depending on your personal circumstances, and you have the option to adjust your drawdown rates and frequency of payments every year on the annuity’s anniversary date.

In the anniversary month, if you have elected for the annuity to be paid monthly, legislation requires that it must be paid each month to a bank account in your name. You may not elect for the annuity income to be paid more than once a month.

Similarly, you may elect for the annuity to be paid annually, which can be between 2.5% and 17.5% paid upfront.

Put simply, should you decide to make this change, you would be paid all 12 monthly payments upfront – which would provide you with the liquidity you need to settle the debt.

Keep in mind, if this is your only income, it is important to budget carefully to ensure that you have enough capital to provide you with sufficient income each month, as the next time you will be able to draw from your living annuity is at the next anniversary date.

If you draw an annual amount upfront, you may put the remaining lump sum amount in a money market fund and set up a regular withdrawal each month.

This way the funds do not sit in your bank account where they are easily accessible and potentially earning little to no interest.

Tax implications

If you have received a few months’ annuity income in this current tax year (March 2021 to February 2022) and then in your anniversary month elect an annual upfront annuity, you will then be taxed on all annuity income received in the current tax year.

You would then be taxed on about 15 months’ income which may increase your marginal tax rate.

In summary, we have assumed that you are still in the month that you may make changes to your annuity draw-down and have not missed the cut-off for these changes.

Once you have made this upfront annuity draw-down, it is important to bear in mind that you will have no access to the funds from the living annuity until the next anniversary date.

Do you have any questions you would like answered by registered financial planners?

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I agree, take the annual withdrawal, pay your debt and invest the balance in a unit trust fund. Take 3 months income and put it money market fund and the balance in a similar or little higher risk portfolio to try and make up the withdrawal before you start withdrawing from it.

I would not do it.you will always owe people. Make arrangements with the people you owe. When you get back to work you can start paying back the people you owe and are so scared of.

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