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Draft Conduct Standard for default living annuity options

The Financial Sector Conduct Authority (FSCA) has released a draft conduct standard proposing new maximum drawdown rates determined by age band and gender for default annuities or monthly pensions offered by funds. The draft Conduct Standard is open for public comment until 14 January 2019.

The recent documents for consultation contained:

1. The Draft Conduct Standard on the Criteria for Living Annuities in a Default Annuity Strategy (Annexure A);
 2. The Statement explaining the need for, the expected impact and the intended operation of the draft Conduct Standard (Annexure B);
3. A Comments Template (Annexure C).

According to the FSCA,  the purpose of this Standard is to set out the drawdown levels that must be complied with as contemplated in Regulation 39(3) as well as to determine conditions for a living annuity to be chosen as part of a fund’s default annuity strategy.

Annexure A discusses the principles, sustainability of income, monitoring the sustainability and drawdown limits for a default annuity strategy in the form of living annuities.

Business Day recently reported on the release of the draft conduct standard. According to Taryn Hirsch, senior policy adviser of the Association for Savings and Investment South Africa (Asisa), the amounts proposed in the standard are lower than the average amount drawn by South African living annuity policyholders, which, according to ASISA was 6.64% in 2017.

“In terms of the Income Tax Act, living annuity policyholders can draw a regular income of between 2.5% and 17.5% of the value of their living annuity capital each year. However, when the percentage of income drawn exceeds the real returns of the investment portfolio supporting the living annuity, it will erode your capital over time”, Hirsch said.

Click here to read the Business Day article.

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