On retirement from a retirement fund a compulsory annuity / pension is spawned. This investment option can only be accessed on retirement from a retirement fund. A compulsory pension pays the retiring member a regular monthly or annual payment in the form of an annuity / pension.

There are two types of compulsory annuities. They are the traditional annuity where the retirement fund or the insurer specifies a monthly to the member and guarantees this payment. Here the fund /insurer carries the risk. .

The second alternative is the living annuity. The member places the retirement benefit into an investment portfolio and nominates a monthly payment between the parameters 5% and 20%. The member takes the investment risk. Should the specified monthly annuity payment exceed the investment performance, there will be an element of capital depreciation within the portfolio.

Living annuities have become popular due to their flexibility in the selection of an income and the investment control they offer. However, the most significant benefit is in the protection of capital in the event of the member’s demise. In a traditional annuity the capital is forfeited in the event of a member’s demise. In the case of a living annuity, the capital is never lost and can be bequeathed.