Forms and Documents

The LifeCycle Retirement Funds
Retirement Form

A living annuity allows you to set your income level subject to constraints imposed by the authorities from time to time and allows you to select a wide range of investments in respect of the capital that will generate the annuity. The level of income you select is not guaranteed for the rest of your life. The level of income you select may be too high and may not be sustainable if:

• you live longer than expected with the result that the capital is significantly depleted before your death; or
• the return on the capital is lower than that required to provide a sustainable income for life.

It is your responsibility (in consultation with your financial advisor) to ensure that the income that you select is at a level that would be sustainable for the rest of your life. You need to carefully manage your income drawdown relative to the investment return on the capital in order to achieve this. The table below can be used as a guide.

Years before your income will start to reduce:

It is important to note that the table above assumes that you will adjust your percentage income selected over time to maintain the same amount of real income (i.e. allowing for inflation of 6% per annum). Once the number of years in the table above has been reached, your income will diminish rapidly in the subsequent years.

Please ensure that your financial advisor has explained both the advantages and the risks of the living annuity and compared these against conventional annuities (where the insurer carries the full investment risk and the risk of you living longer than expected). The table is a general guideline and should be considered taking into account each annuitant’s financial situation and all other sources of income. It is an indicative guideline only, to assist you in making informed decisions in respect of your annuity.

It is important to note that investments held in your living annuity are made up of various types of assets classes such as equities, bonds, property or cash. These underlying assets have different levels of risks and returns associated with them. You and your financial adviser are therefore reminded to carefully consider the overall composition of your living annuity in terms of the exposure to these various asset classes.

Too high a proportion of risky assets means there is a greater risk of losing capital while too low a proportion of risky assets means there is a risk that investment returns may be too low to sustain your income. In order to protect a member’s retirement savings, the Pension Funds Act regulates the maximum limits to the different asset classes that a retirement fund may expose itself too. These limits are there to give guidance to what may be considered prudent investment limitations. However, this should never be seen as a substitute for obtaining professional advice and does not take your specific personal circumstances into account.

Broadly speaking the maximum exposure that retirement funds may have to the various asset classes are as follows: -

75% to equity investments
50% to non-government debt instruments
25% to offshore investments
25% to property investments
15% to hedge funds, private equity funds and any other asset not specifically mentioned aggregated together
10% to commodities like gold

This regulated exposure will apply while you are saving up to your retirement through an approved retirement fund and if you purchase an annuity within the retirement annuity fund. After retirement, when you are normally dependent on receiving a regular and stable income, a more conservative approach to asset selection may be desirable. You are encouraged to review your living annuity investment strategy, as your capital within your living annuity may be exposed to undue risk.