Investments

Why volatile markets create a golden opportunity for life annuities

In a world of economic uncertainty, there is something comforting about a fixed, reliable income – especially one that lasts for life. As markets swing, inflation bites and interest rates fluctuate, many South Africans approaching retirement are rediscovering a powerful financial product: the life annuity.

What is a life annuity?

A life annuity is a financial product that turns a lump-sum investment – typically from a pension, retirement annuity or other retirement savings – into a guaranteed monthly income, for as long as you live. It is a personal pension you buy for yourself. Once you buy a life annuity, your monthly income is locked in. That means no matter how the markets perform or how interest rates shift, your income stays the same. This feature alone makes annuities particularly attractive in today’s environment, where global and local financial instability continues to impact investor confidence.

But perhaps the most important benefit of a life annuity is its ability to eliminate longevity risk – the very real possibility of outliving your savings. With a life annuity, your income does not stop at age 85, 90, or even 100. It continues as long as you do.

To help your income keep up with the cost of living, many life annuities offer income escalation options. This means your payments can increase each year by a fixed percentage or the inflation rate, helping preserve your purchasing power over time.

RETIRE YOUR WAY

Flexible options to suit your needs

One of the strengths of life annuities is their customisability. Far from being a rigid, one-size-fits-all product, a life annuity can be tailored to suit your needs and goals. Some of the key options include:

Single or joint life coverage:

Ideal for couples, this ensures that the surviving spouse continues to receive an income after one partner passes away.

Guaranteed income periods:

You can choose to have your income guaranteed for a set period – up to 25 or even 30 years with certain providers like Sanlam. This ensures that, even if you pass away early, your beneficiaries continue to receive the income for the remainder of that period.

Income escalation options:

Choose whether you want your income to stay level or increase annually by a fixed rate or in line with inflation.

Life cover add-on:

With this feature, your beneficiaries receive a lump sum when you pass away. This amount is free of executor’s fees and not taxed in the beneficiaries’ hands, although estate duty may apply.

MORE THAN JUST A NUMBER

How are annuity rates determined?

The monthly income you will receive from a life annuity is determined by a few key factors: your age, gender, the features you select (such as joint life or escalating income) and – critically – the prevailing bond yields at the time of purchase.

Bond yields play a central role because life insurers invest heavily in bonds to fund the guaranteed payments made to annuity holders. The higher the yield on those bonds, the more income the insurer can generate – and the more they can offer you in return.

Put simply, higher bond yields mean higher annuity rates.

And right now, thanks to global uncertainty and a volatile local landscape, bond yields in South Africa are elevated – creating an unusually favourable environment for locking in higher lifetime income through a life annuity.

PAST TRENDS, PRESENT OPPORTUNITIES

Bond yields: a decade in review

Over the past decade, global and local events have caused dramatic swings in bond yields.

2015-2025 Locally, the picture looked like this:

2015:

Bond yields spiked dramatically when then-President Jacob Zuma dismissed Finance Minister Nhlanhla Nene, triggering a crisis in investor confidence.

2017–2018:

A sense of renewed hope, dubbed ‘Ramaphoria’, accompanied President Ramaphosa’s rise to leadership, sending bond yields down again.

2020:

At the onset of the Covid-19 pandemic, markets panicked, and global bond yields soared to levels not seen in decades.

2024:

In the lead-up to the national elections, political uncertainty pushed yields up once more.

2025:

The formation of a Government of National Unity helped stabilise the landscape, but yields remain high, offering attractive annuity pricing.

A REAL-WORLD EXAMPLE

What do changes in bond yields mean for annuity income?

Let us look at a hypothetical example of a 65-year-old woman with R4,2 million to invest in a level-income life annuity with a 10-year guaranteed payment term. Here is the income she would have secured at various points during the past six years:

July 2019: Monthly income = R36 000

June 2020: Monthly income = R40 500

April 2024: Monthly income = R46 000

May 2025: Monthly income = R43 800

This shows just how profoundly bond yields can affect your retirement income. The difference between R36 000 and R46 000 per month is R120 000 per year – a substantial impact over a lifetime

THE BOTTOM LINE

With current market conditions, today’s high bond yields mean you can lock in a significantly higher lifetime income than was possible just a few years ago.

In an unpredictable world, certainty has value. For retirees and those nearing retirement, securing a portion of your wealth in a product that provides guaranteed, lifelong income can serve as an important foundation for financial peace of mind.

Source: Glacier Financial Solutions (Pty) Ltd is a licensed financial services provider.

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