• Bruce Cameron

The long-lingering ghosts for pensioners of the Covid-19 virus and the kleptocracy regime

There are rules that everyone should follow every time there is a financial crisis, whether it is the Covid-19 pandemic and/or the continuing kleptocracy regime virtually wrecking the South African economy.

This week and next week will be the final columns in this series on security for pensioners. Both these columns give a summary of the previous columns and some extra information.

The ghosts of the latest events are going to be long-lasting. Investment markets are going to be volatile. You can expect increases in taxes, you can expect inflation or deflation and you can expect less income in the years ahead. It is best to take action now.

Here are the rules you should consider if you are already short of income or suspect you will be:

1. Take action now: Pensioners are seriously at risk. Don’t wait until the disaster hits. Take action now if you feel your financial future is uncertain. To correct a current poor decision later may be very limited.

2. Budgets: Do two budgets (if you have not done one). One for the year ahead to see what you will spend; and one into the future. They must include what you will receive and what you will pay out. Once you have the first year’s budget then work out a longer-term budget, taking into account future inflation rates of the things you expect might go up, such as healthcare bills, or down, such as not using a car. (More in next week’s column.)

3. Pension structure: Check the structure of your pension. This includes:

  • It may be well worth converting an investment-linked living annuity (living annuity) to a hybrid annuity, which has a guaranteed annuity as part of its structure.

  • Guaranteed annuities will offer you guaranteed income that won’t be susceptible to the investment threats of a living annuity. The income gets better the older you are when you invest your savings.

  • Consider risks to your pension, particularly the risks, including scams, and when you have a serious disease, particularly dementia.

4. Enhanced (Impaired) annuity: If you have a lower life expectancy, a living annuity is often suggested that could allow you to withdraw as an income and/or leave more to beneficiaries. A living annuity is not the end of the story. You should first do a comparison with a traditional enhanced annuity that can pay out considerably more because of your state of health or lifestyle issues. The advantage of enhanced traditional annuities is that you can be sure it will pay out for as long as you live. With living annuities, if you live longer than expected, you will run out of money.

Enhanced annuities pay out when:

  • You come from a low-income household with limited access to healthcare and proper nutrition.

  • You suffer from a life-threatening disease, such as cancer, Parkinson’s disease, multiple sclerosis, diabetes, have had a stroke or heart attack. The stage of the illness is taken into account.

  • Your lifestyle factors threaten your life such as smoking, drinking too much or being overweight.