Johan Kriek is the founder of Quantum Leap, and will present the ASSA Convention poster Turning living annuities into living pensions, at this week’s ASSA conference
Choice and flexibility in living annuities have not failed South African retirees. What has failed is an operating model that gives members a complex, lifelong income problem and then expects them to manage it largely on their own. The answer is not to remove flexibility. It is to place proper governance around it.
Choice should be a right not a job
A living annuity gives a retiree valuable rights. The member can select an income within the permitted range, choose how the assets are invested, change that income as circumstances evolve, transfer to another provider and convert to a life annuity later. Those rights have real value in a country where family responsibilities, health, work after retirement and the need for access to capital differ enormously between households.
But having the right to make a decision is not the same as being capable of running a retirement-income strategy for the next 20 or 30 years. A retiree must judge how much income is affordable, select an investment strategy consistent with that income, withstand market falls, respond to inflation and continually reassess the possibility of living longer than expected. Even financially sophisticated people can struggle to do that consistently.
The usual response is that members do not engage and therefore need fewer choices. That confuses two different questions. Most members may not want to make repeated technical decisions, but it does not follow that they want to surrender ownership, transferability, access to capital or the ability to change course. The silent majority does not need every choice removed. It needs a default that works while those choices remain available when they matter.
We are comparing governance with its absence
The case against living annuities often rests on an uneven comparison. On one side sits an individual member who chooses an investment portfolio and drawdown rate and then carries the consequences. On the other sits a centrally governed arrangement in which professionals set the investment strategy, define an income objective, monitor outcomes and intervene when experience departs from plan.
If the second arrangement produces a steadier income, that does not by itself prove that individual ownership or flexibility caused the weakness in the first. It may simply show that governance is better than no governance.
Collective or guaranteed products can offer benefits that an individual living annuity cannot reproduce. Mortality pooling can support additional income for survivors, and an insurer can provide guarantees backed by capital. Those are genuine economic features. But professional investment management, scale, sensible income setting, regular monitoring, member communication and pre-agreed intervention rules are not unique to pooling. They can also be applied to an individual living annuity.
The fair comparison is therefore not between an unmanaged living annuity and a governed collective arrangement. It is between arrangements with equivalent investment strategies, fees, income objectives, monitoring and adjustment rules. Mortality pooling or guarantees can then be added separately, making their actual contribution visible.
From a living annuity to a living pension
A living annuity is a product wrapper. It becomes a pension only when it has an operating system for turning capital into income. That operating system should not depend on the member repeatedly making technical choices.
| Governance discipline | What it should achieve |
| Income objective | Translate the member’s assets, age and circumstances into a clear income objective and planning horizon. |
| Affordable starting income | Set income with reference to the assets, investment strategy and transparent assumptions, not merely the maximum permitted drawdown. |
| Liability aware investment | Design the investment strategy to support the income objective, with an explicit risk budget and deliberate exposure to growth assets. |
| Ongoing measurement | Track funding, income sustainability and depletion risk as markets and withdrawals change, rather than relying on occasional reviews. |
| Intervention rules | Use agreed guardrails for income, investment or advice interventions before a deteriorating position becomes irreversible. |
| Retained member rights | Allow the member to change income, transfer, access permitted capital or annuitise later without making continuous engagement a condition for success. |
This is governed individual drawdown. It retains an individual account and flexible rights, but the default decisions and ongoing oversight sit within a professional governance process. The result behaves more like a living pension and less like a retail investment account from which income happens to be withdrawn.
Governance is not a guarantee
This approach should not be oversold. Governance cannot manufacture investment returns, eliminate sequence risk or create mortality credits. Income may sometimes need to change. Some members will prefer a life annuity, a pooled arrangement or a combination, particularly where securing essential expenditure matters more than retaining capital flexibility.
The appropriate balance may also change with age. A member could retain greater flexibility in early retirement and add guaranteed or pooled income later, when mortality credits are more valuable and spending needs are clearer. Good governance should support that transition rather than force one irreversible answer at retirement.
The objective is not to prove that a governed living annuity is best for everyone. It is to ensure that it is compared fairly with the alternatives and operated competently for those for whom it is suitable.
Regulation 39 is a foundation not yet a pathway
South Africa already has much of the institutional foundation. Regulation 39 requires the boards of pension funds, pension preservation funds and retirement annuity funds to establish an annuity strategy. The board must consider whether the selected annuities are appropriate and suitable for relevant classes of members, communicate the strategy and review it regularly.
But the annuity strategy is not a true default in the way an accumulation default is. Applying a member’s retirement savings through the strategy requires the member’s consent. In practice, the member must still find, understand and elect the pathway. The people least inclined or equipped to engage can therefore miss the very governance framework intended to help them.
A practical next step would be to permit a suitable, reversible living-annuity pathway to operate as a genuine opt-out default. The member would retain the right to select another provider or product, change income and annuitise later. No one should be automatically locked into an irreversible life annuity without an affirmative decision, but neither should inaction leave a retiring member without a properly governed income strategy.
Measure outcomes rather than activity
The regulatory focus should then move beyond whether information was disclosed or a member made an election. Providers and boards should be able to demonstrate how initial incomes are set, how sustainability is monitored, when interventions are triggered and whether outcomes remain appropriate for the members the strategy is intended to serve.
That requires useful management information: drawdown rates, changes in affordability, projected depletion ages, exposure to adverse sequences of return, interventions and cohort outcomes. A glossy communication and an annual reminder to consult an adviser are not substitutes for an operating process.
The proposed conduct framework for living annuities creates an opportunity to make those expectations consistent. Its success should be judged by whether it changes retirement-income outcomes, not whether it produces another layer of disclosure.
Finish the system around the member
South Africa’s living-annuity system is often criticised through examples of people choosing unsustainable incomes or making poor investment decisions. Those cases are real, but they do not prove that flexibility itself is the mistake. They show what happens when flexibility is offered without a sufficiently strong default and without continuing governance.
The industry already knows how to build investment defaults, set risk limits, monitor funding positions and intervene when plans move off course. It applies those disciplines throughout accumulation. Retirement is where the member’s objective becomes more complicated and the consequences of failure more serious, yet it is also where the governance chain too often weakens.
Choice and flexibility in living annuities have not failed the silent majority. We have failed to finish the system around them. The task now is not to replace living annuities, but to turn them into living pensions.
ENDS
