Key features of the Old Mutual Max Income Guaranteed Bonus Escalation Annuity (Income for Life)
This annuity option is known as a life annuity. This means that the pension you start out earning will depend on the amount that you use to purchase it, and you are guaranteed to receive your pension for the rest of your life by Old Mutual. The potential yearly pension increases you receive depend on how the investment markets perform. Once an increase is given it is guaranteed by Old Mutual or ‘locked in’ for the rest of your life, so your pension will never decrease - even if markets perform badly.
When you retire, you use some, or all of your retirement savings to purchase a Max Income Guaranteed Bonus Escalation annuity (Income for Life) policy - the law requires that you use at least 2/3 of your retirement annuity fund or preservation pension fund benefit in an annuity on retirement, unless the total fund value is R247 500 or less (in which case the full value can be withdrawn as a lump sum). While you aren’t forced to use your preservation provident fund benefit to provide an annuity, you can choose to use all or a portion of it. Depending on how much you use to purchase the annuity, you will get a regular pension paid to you from your Max Income Guaranteed Bonus Escalation annuity (Income for Life) policy for the rest of your life. Your pension is guaranteed to be paid to you for life by Old Mutual and will never be less than the regular amount you receive in the first year.
Every year, Max Income Guaranteed Bonus Escalation annuity (Income for Life) declares an annual ‘bonus’. This is effectively your annual pension increase. The amount your pension goes up by depends on how well the investment markets have done for the previous year. To ensure that your increases remain reasonably stable over time, Old Mutual holds back a portion of the investment growth so that, in times of poor investment performance, Old Mutual is able to provide a higher annual increase than would otherwise have been the case. This is called ‘smoothing’ investment returns. For more detailed information about this, please refer to the Principles and Practices of Financial Management (PPFM) document. The bonus may be zero. You will never receive a negative bonus - even if the markets declined in value over the previous year - so the worst-case scenario could be that your pension does not increase for the coming year.
Since your pension is payable to you only for your lifetime, this means that your Max Income Guaranteed Bonus Escalation annuity (Income for Life) investment DOES NOT go to your dependants or beneficiaries as part of their inheritance when you die (except if you have chosen a joint life pension or guaranteed term option as discussed below).
You may select a second life to receive the income following your death. Although this option provides a lower starting income than a Single Life annuity, it allows you to provide for another person (normally a spouse or civil union partner) in the event of your death. If a second life is selected, the level of income will reduce to 66.67% on your death. You have to select the second income recipient at the time you purchase the annuity, and you may not do so at a later stage.
The guaranteed term will be 5 years. The guaranteed term ensures that, in the event of your death during the guaranteed term, the income will continue to be paid to your beneficiaries/second life if selected, until the end of the 5 year period. The guaranteed term reduces the initial income payable; however, it allows you to potentially provide some funds to your beneficiaries when you die.