Switching Living Annuity Providers: Weighing Your Options And Comparing Costs

When retirement rolls around, you have the option of using your accumulated retirement savings to purchase either a living annuity or a life (guaranteed) annuity. This is a big decision to make and it requires some careful thought and thorough assessment of your risk tolerance and retirement goals. A living annuity is a retirement savings investment product that offers flexibility in managing both your investment portfolio and the level of income you receive. Unlike a life (guaranteed) annuity, which offers a fixed income throughout your golden years, a living annuity allows you to adjust your income withdrawals (within regulatory limits) and maintain control over your investment decisions. 

The idea behind living annuities is to invest your savings across a range of assets, so that you can sustain your retirement by living off the returns generated from these investments, rather than depleting your original capital, or as is the case with a life annuity, forfeiting that capital over to an insurance company when you pass away. This approach allows you to potentially grow your savings while also tailoring your income to meet your changing needs and circumstances.

Living annuities have become a popular choice in South Africa primarily due to this flexibility and the potential for capital growth. However, the competitive nature of the market means that various providers offer different features, with varying fee structures, investment options, and levels of customer service – making the selection process all the more complex. Choosing the right living annuity provider is a critical decision, as it can directly influence the sustainability and growth of your retirement savings. 

The fees charged by your chosen provider can significantly impact the growth of your investment – with low fees returning more money to you and giving you a better chance of growing your capital, and high fees acting like compound interest in reverse. Did you know that a 1% saving in fees can mean up to 30% more money in retirement? Additionally, the transparency of your provider in terms of fees and underlying fund performance is also crucial. Many retirees consider switching providers when they become aware of high fees, hidden costs, underperformance relative to the market and a lack of ease and transparency from their current provider. 

If you find yourself in a situation like this, it might be time to do a free cost comparison and consider making the switch to a living annuity provider with low fees, no hidden costs, and the desire to empower you to make smart decisions. In a competitive market, 10X Investments stands out with consistently low fees, transparency, and a range of tools that can help retirees better understand and manage their investments. Our 10X consultants are available too, so you can reach out with any questions or concerns you may have – there are no call centres here at 10X, only experienced professionals ready to offer valuable insight. 

This article focuses on the reasons investors might consider switching living annuity providers, and the potential for improved financial outcomes when moving to a provider that offers better value for money, higher service quality, and diverse investment opportunities. 

When to Consider Switching Living Annuity Providers

There are several common reasons why retirees might consider switching their living annuity provider. Dissatisfaction with high fees, poor service, or underperformance of investment funds are among the top concerns. Additionally, changes in personal financial goals or circumstances like a desire for more diversified investments or better offshore exposure can also prompt a switch.

When comparing living annuity providers, understanding fee structures is essential. Some providers may charge initial fees including advisory or setup fees, which can impact the overall value of the investment. The Effective Annual Cost (EAC) varies between providers too, and high EAC can significantly affect the growth of your retirement savings over time. If you don’t know your EAC, use our handy EAC calculator to do your sums. Transaction costs, which are incurred when changing funds within the annuity or switching providers, should also be considered, along with trading costs (although these are small and don’t range widely across the industry). With that in mind, let’s Investigate the impact of fees on your living annuity investment.

Living Annuities and Fees

Fees play a crucial role in determining the long-term growth of your investments. Low fees can significantly enhance the growth of your retirement savings by allowing a greater portion of your returns to be reinvested – leveraging the power of compounding interest. On the other hand, high fees can gradually erode your investment returns as they accumulate over time and reduce the overall growth of your capital – this is the power of compounding working in reverse. 

To illustrate, consider an investment of R1,000,000 with an annual return of 7%. If total fees are 3%, the investment would grow to R4,321,940 over 30 years. However, if fees are only 1%, the same investment would grow to R7,612,260. In short, even a small difference in fees can lead to a significant difference in your investment’s long-term growth.

Note: To avoid depleting your savings, your income withdrawals, combined with the inflation rate and fees, should not exceed your investment returns. This principle is referred to as the "golden equation" and you can learn more about it here.

Low fees, when paired with sustainable drawdowns, can extend the lifespan of your retirement savings, ensuring a steady income throughout your retirement years. Here at 10X Investments, we take this to heart which is why we strive to keep our fees low (starting from 1.04%, and decreasing as your investment grows). This fee structure means that more of your money remains invested and continues to compound over time. Additionally, we avoid the common fees often charged by other providers like setup fees, performance fees, switching fees and excessive administration costs. 

Living Annuities and Net Investment Returns

It’s also important to distinguish between fund performance and net investment returns. While fund performance reflects the gross returns generated by your investment, fees reduce the actual returns you receive, and what you get is known as net investment returns. 

The key difference lies in the fact that fund performance shows the potential of the fund's investments, while net investment returns reflect what you actually earn after fees are taken into account, as well as the hidden costs of inflation. In this regard, living annuities offer plenty of flexibility, allowing you to regularly review and adjust your income drawdown rate to help with managing a constantly-moving inflation rate. As mentioned, ideally, your income drawdown + the inflation rate + fees must be equal to or less than your investment returns in order to avoid depleting your savings.

Keep in mind that high fund performance does not always lead to high net returns if the fees charged by your provider are substantial. For instance, if you invest R100,000 and your investment achieves a 10% gross return, that would generate R10,000 in returns. However, if the provider charges a 4% fee (R4,000), your net return would only be R6,000. Let's consider the same investment of R100,000 with the same gross returns but lower fees. If your investment still achieves a 10% gross return, generating R10,000 in returns, but the provider charges a lower fee of 2% (R2,000), your net return would now be R8,000 instead of R6,000. 

Over 20 years, the impact of fees on your investment can be substantial – if you invest R100,000 at a 10% gross annual return with a 4% fee, your investment would grow to approximately R320,714. However, if the fee is reduced to 2%, your investment would grow to around R466,096. This means that the difference in fees could result in an additional R145,382 in your investment’s value over 20 years. As you can see, the fees associated with a living annuity investment are just as critical as the fund's performance in determining the actual growth of your savings.

Living Annuities and Effective Annual Cost

The Effective Annual Cost (EAC) is a standardised metric introduced by the Association for Savings and Investment South Africa (ASISA) to help investors better understand and compare the costs associated with owning and managing an investment (including living annuities). The EAC consolidates all the fees and charges that apply over a year, including costs for investment management, administration, financial advice, early withdrawal penalties, and any other applicable fees like loyalty bonuses or guarantees. This measure can give you a clearer picture of the total cost of your investment so you can make informed decisions when comparing different providers.

When evaluating your living annuity options, comparing the EAC percentages of different providers can reveal the true cost of ownership. A lower EAC indicates that a larger portion of your investment is being effectively utilised to grow your wealth or provide you with income, while a higher EAC can erode returns over time due to the compounding effect of fees. Therefore, choosing a living annuity provider with a lower, transparent EAC can significantly enhance your investment outcomes.

At 10X Investments, the approach to EAC is designed to be straightforward and transparent. We charge a single, all-inclusive fee that covers investment management and administration, along with standard transaction and trading costs that apply to any portfolio. There are no exit fees either, and you won’t have to worry about any hidden costs eating away at your investment. While some people pay for the help of a financial advisor when setting up their living annuity, we aim to simplify the investment process and thereby empower you, minimising the need for external financial advice and making our solutions accessible and easy to manage. 

To get a precise idea of the costs associated with a 10X Living Annuity, try out our EAC calculator for some detailed insights into what you can expect to pay, or if you’re considering switching from your current provider, check out our cost comparison tool to see how much you could save with 10X Investments. You can also take advantage of our living annuities calculator when building your retirement plan. 

Evaluating Service Quality

Living annuities exist to provide you with an income after retirement so you’re going to want to know exactly what’s going on with your investment on a regular basis. Beyond costs, the quality of service offered by your living annuity provider is critical, and this includes the accessibility, responsiveness, and expertise of customer service teams. Too often, retirees are left in the dark when it comes to their investments, with call centres getting in the way of getting the information they need (and having it relayed clearly). 

At 10X Investments, we do things a little differently. As mentioned, we offer personalised support without the use of call centres. If you have any questions regarding your living annuity investment, all you have to do is get in contact and book a meeting with one of our professional consultants – with 10X, you can look forward to speaking with real human beings who know what they’re talking about. 

The availability and quality of online tools are also important when it comes to understanding the ins and outs of your living annuity investment. For instance, 10X provides a user-friendly living annuities calculator that helps retirees estimate their future income based on current savings and projected retirement age. We also offer plenty of other tools so that you can build your retirement plan effectively. You can also take a look at our useful Living Annuities Q&A as well as our blog, tax tips, and other downloadable resources. 

Adding to the above, the reputation of the provider, as reflected in customer reviews and industry ratings, should not be overlooked. Satisfied clients of 10X often highlight the clarity and transparency of the information they receive, like Felicia Roman who stated that she “didn’t have to have a degree in finance” in order to understand what was happening to her money. Rober James Bond has noted that 10X is “outstanding” for the fact that he is able to monitor the performance of his investments electronically, even on a daily basis. 

Also frequently mentioned are our low fees, with Colin Greenway mentioning that joining 10X was a “no-brainer” with the low fees sealing the deal. If you’d like to hear it from the source, take a look at our testimonials and see how 10X Investments have paved the way for plenty of retirees looking to build their retirement savings. You could also take a look at our HelloPeter reviews to hear what people have to say about 10X. 

Assessing Fund Performance and Investment Options

Underlying fund performance is to some extent dependent on market conditions, with factors like economic trends, interest rates, and global events playing a major role in how investments fare. However, the investment strategies employed by providers have a direct impact on fund performance. A provider's approach to asset allocation, diversification, and risk management can either enhance or mitigate the effects of market volatility, making it a crucial factor in long-term investment success.

Some investors might consider switching providers if they are dissatisfied with their current fund options or if the funds are underperforming compared to market benchmarks. For instance, if your living annuity provider's funds are not well-diversified, or if they are overly exposed to a particular sector or geographic region, this can lead to higher risk and potential underperformance. Additionally, if a provider's investment strategies do not align with your specific risk tolerance or financial goals, you might want to seek out a provider with a more suitable or better-performing set of funds.

When purchasing a living annuity and selecting an underlying fund, your primary decision revolves around choosing an appropriate asset allocation based on your risk tolerance, time horizon, and personal financial circumstances. High equity portfolios may offer greater growth potential, but they also come with increased volatility, which might not be suitable if market fluctuations give you grey hairs and you would rather focus on preserving your capital in the short-term. Conversely, higher allocations towards ‘defensive’ assets like bonds and cash provide more stability but may deliver lower long-term returns. 

The key to effective asset allocation is considering your living annuity in the context of your entire financial picture. Having other secure income sources or significant non-retirement savings is a different proposition to relying on your living annuity as your primary source of retirement income, and different approaches to investing will be necessary. What you eventually choose comes down to your specific financial goals, time horizon, and willingness to weather market volatility. 

With that being said, if you want to manage your own asset mix, implementing a well-diversified portfolio can be challenging and stress-inducing. This is why 10X offers balanced multi-asset funds that combine different asset classes, relieving you of the complexities of tactical asset allocation. Our robust investment strategy emphasises diversification and strategic asset allocation, and involves spreading investments across a wide range of asset classes, including equities, bonds, property, and cash, both locally and internationally. This diversification helps to reduce risk and improve the likelihood of steady returns over the long term. 

Our asset allocation strategy is designed to match the risk profiles and time horizons of different investors, with options ranging from high equity exposure for those seeking growth, to lower equity options for more conservative investors or those nearing retirement. The 10X Your Future Fund, for example, is one of our flagship funds tailored for long-term growth with a diversified portfolio that adapts to market changes. 

The 10X Income Fund is designed to provide a high level of income and long-term capital stability, with a focus on a diverse range of local and international interest-bearing assets, while the 10X Moderate Fund is suited for investors seeking capital growth with lower volatility. The 10X Defensive Fund is tailored for investors who want to protect their capital with very low-risk tolerance, has the least exposure to equities, and focuses more on fixed-income securities. These are just a few of our underlying funds, each tailored to suit different financial goals, risk tolerance, and time horizons.

All together, the 10X investment strategy, with a focus on low fees, broad diversification, and strategic asset allocation, can make a compelling case for investors looking for well-rounded and market-resilient fund options. This approach makes 10X a strong contender for those considering a switch due to dissatisfaction with their current provider’s performance or fund options. 

Living Annuities and Exploring Offshore Exposure

Many retirees in South Africa are increasingly looking to diversify their investments by gaining offshore exposure, and a living annuity is one of the vehicles that can facilitate this. Offshore exposure allows you to diversify your retirement savings across global markets, reducing the risk associated with being invested solely in the South African economy. This is particularly useful in times of local economic instability or for those who want to take advantage of growth opportunities in international markets.

Unlike most living annuity providers with investment limitations, 10X Investments offers the option of up to 100% offshore exposure within a living annuity. This is a significant advantage because it gives retirees the ability to allocate their entire living annuity to international assets, providing broad diversification and access to potentially higher-growth markets outside of South Africa. As mentioned, this level of offshore exposure is not commonly available with other living annuity providers, making 10X a unique option for those prioritising global diversification in their retirement portfolios.

Unlike retirement funds, living annuities are not regulated by Regulation 28 of the Pension Funds Act, meaning you are able to have 100% offshore exposure if you want it. For individuals over 55 who may not immediately need to draw an income from their retirement savings, purchasing a living annuity with the specific goal of gaining offshore exposure can be a strategic move. These individuals might have other sources of income, allowing them to invest 100% offshore without worrying about the risk of running out of money. By doing so, they can potentially maximise the growth of their retirement savings by taking advantage of international market opportunities, while also spreading risk across different economies and currencies.

This approach can be particularly appealing for those concerned about the long-term prospects of the South African economy or for those simply looking to ensure that their retirement savings are not overly concentrated in one geographic region. 10X's offering of 100% offshore exposure within a living annuity is thus a powerful tool for retirees looking to optimise their retirement income through global diversification. If you’re interested in investing offshore with 10X, you can read more about it here.

Living Annuities: Grow Your Wealth With 10X Investments

Switching living annuity providers is a significant decision that calls for careful consideration of both financial and service aspects. By taking a proactive approach to your retirement planning and weighing up your options, you can make sure that your savings are optimally invested to support your long-term financial security.

10X is here to simplify your retirement investments with low fees, an exceptional track record, and a straightforward investment approach. If you’re ready to make the switch to 10X Investments, don’t hesitate to get in touch.