147. Money That Outlives You: The Just Retirement Story

Retirement income planning can be daunting, especially when considering how to make your money last as long as you do. This illuminating conversation with Clive Lazar, Regional Manager at Just Retirement, demystifies life annuities and showcases an innovative approach to guaranteed lifetime income.

Just Retirement brings something unique to the South African insurance market. Backed by the UK-listed Just Group (a FTSE top 200 company), they've operated locally for over a decade with an impressive international 'A' credit rating—higher than any local insurer. This financial strength provides essential security for retirees entrusting their capital to receive lifetime income.

What truly distinguishes Just Retirement's approach is their enhanced underwriting process. While all insurers consider standard factors like age, gender, and fund size when calculating annuity rates, Just Retirement goes further by incorporating socioeconomic factors and, uniquely among South African insurers, detailed health and lifestyle assessments. This personalized approach can result in more favorable rates for many retirees, particularly those with health conditions that might reduce life expectancy.

The tax advantages of life annuities are substantial, especially when purchased with discretionary money. Approximately 60-65% of income from fixed-escalation annuities is tax-free, while annuities with variable increases (like inflation-linked or with-profit options) can offer up to 90% tax-free income. These benefits make life annuities worth considering for anyone looking to create efficient, guaranteed income streams in retirement.

Whether you're approaching retirement or simply planning ahead, understanding these specialized financial products could significantly impact your long-term financial security. Subscribe to Know Your Money for more expert insights on securing your financial future, and visit www.growthfp.co.za to connect with professionals who can help you navigate these important decisions.

Chapters

• 0:00 Welcome to Know Your Money

Transcript

SPEAKER_02: 0:12

Hello everybody. Welcome to Know Your Money. I am Branwan Wayner.

SPEAKER_01: 0:16

And I'm Craig Finch, and we are from Growth Financial Planning. We hope you enjoy our podcast. Welcome, Clive Lazar from Just Retirement. Thanks for coming to our studio. And I'd like to introduce yourself and who is Just Retirement? Some of our listeners may not have heard of your company, which we use extensively in our practice.

SPEAKER_00: 0:37

Good morning. Yes, thanks so much, Craig. My name is Clive Lazar. I'm the regional manager for Just Retirement. Just Retirement is a long-term insurer in South Africa, licensed and regulated to offer long-term insurance products, specifically what we refer to as life annuities. A life annuity is a policy that is taken out using a lump sum of capital, and that then is paid over to an insurer like Just who in turn will pay a monthly income or pension to a client for their lifetime, hence the name life annuity, an annuity for the client's lifetime. And that's what we provide. So Just Retirement has been operating in South Africa for over 10 years. And it's important to note that we are 100% owned by the Just Group. The Just Group is a licensed and listed insurer in the UK, part of the FTSE top 200 companies. And they entered the South African market about 10 years ago where they felt there was an opportunity to differentiate products and features to the normal traditional long-term insurance products that are offered.

SPEAKER_01: 1:52

Now, just retirement, when they came to South Africa, how did they how do they enter the market? What was the the um who introduced them? How do they because it's difficult to enter a very saturated, mature market, especially in the life world of the big big assurers? We've got some incredible insurers here, Old Mutual Liberty, Sunlam, etc., that are doing very well in the market. So how did you guys enter the market and how did was it easy? Did you come in the back of somebody else?

SPEAKER_00: 2:22

Yeah, that's a great question. Um so our CEO, Dean Moore, um, had been running um the m the momentum, the MMR um life annuity products, specifically the with profit annuity, and felt there was a gap in the market um in the South African market, specifically in terms of some of the life annuity features. Um and what he did was he went to the UK and found some funding from the Just Group who felt there was definitely an opportunity to enter the market. So obviously, as an insurer, um one needs to have the necessary capital behind you. So with that capital and that funding, um, we were able to set up the business here in South Africa as a long-term insurer and slowly, slowly build a brand and a name so that we can start to compete with the other insurers, the well-known insurers like Mutual Sun, Lum and Liberty. Important to point out that all insurers are regulated by the prudential authority. Um, and so even though just as a small insurer in South Africa, we comply with all the necessary legal and regulatory requirements as an insurer. Um also important to point out that insurers are assessed according to what we call a default credit rating. So, what is the likelihood that the insurer um is able to continue to pay their policy holders their income for their lifetime? Um and rating agencies, for example, um Fitch as a as a well-known rating agency, provides um a default credit rating for all the different insurers. Because we are UK listed insurer, we have a credit default credit rating of A on the international scale. Um, so that obviously should provide some comfort to um clients here in South Africa, knowing that you've got a default credit rating of A, which is actually higher than any of the other local insurers.

SPEAKER_01: 4:23

I think over the years we've never had an insurance company go barely up in that respect where they haven't paid the annuity. If it ever did happen, as you say, the regulation is very strong in South Africa, and another insurer would pick up the pieces. But in your case, you've got the backing of a a massive UK company, which is a a positive for any any annuitant. Because you say, Well, I've given you my capital, you're going to pay me for life, or you'll be around in the next 20 years. And I think that's that's a really a really good point that there's a huge backing behind you.

SPEAKER_02: 4:58

And then also just in terms of that paying a a percent uh you know a salary for life, are your rates competitive or are they you know does everyone have to kind of have the same rate? So let's say it's a million rand, is it five thousand rand a month? How does that sort of work to unpack that a bit?

SPEAKER_00: 5:18

Right. So um so when it comes to a life annuity, um the the majority or or most or all insurers in South Africa use the standard criteria of your age, your gender, and what we call your fund credit, the amount of money that you um are bringing forward from your retirement fund or from discretionary money to use to purchase that annuity. So those are standard criteria. Your age, um obviously age is important because um the younger you are, the longer your life expectancy, which means the insurer's got to factor in the the the lifetime that that's got to pay you that annuity for. Um gender is important because males and females, according to um you know probabilities and statistics live different periods. For example, um if somebody who comes to us at 65 is a male, we expect them to live to on average 82. So that's 17 years. Um whereas if you come to us as a female at 65, we expect you to live to on average 87. So that's an additional, you know, four years, making it 22 years, meaning females live longer on average than males. So that's got to be factored in, and then your fund credit is important because that to a certain extent puts you into a certain, let's call it democra demographic profile. You know, if you're retiring with one million or you're retiring with ten million. Um so those are the standard criteria that all insurers utilize to price the annuity. The difference from our perspective is we take it one step further. So, in addition to those criteria, what we also do is we look at your household income. So um so that's important, as well as your qualification. Um so that that's what we call a social, some additional socioeconomic factors that we factor in. Um, and then a further aspect that we do that no other insurer in South Africa does, is that we will take it one step further and look at your um medical history, so your your lifestyle, um, your background in terms of do you have you had any medical conditions, um, uh, you know, any kind of medical uh impairment, etc., because then we'll factor that as well into the price of the annuity. So that that is one additional aspect that we do as an insurer.

SPEAKER_01: 7:46

I think we'll take that to another episode of the underwriting, which is unique.

SPEAKER_02: 7:50

And then also, so you're saying if you're retiring with that money, but then you also mentioned discretionary money. So how would that work? Like is if someone passed away and they got this huge inheritance, but now they want to try and make sure that they have an income for life, is that the type of person that would come? Or what have you found people use their discretionary money for that?

SPEAKER_01: 8:14

So just to tell the list of discretionary money isn't uh money that comes out of retirement annuity or a pension fund that you're forced to buy an annuity or a pension. Discretionary money, as Broman says, you sell a business, your li a life policy pays out, um, you've got a lump sum of money to invest at your own discretion. You can invest wherever you like. So will they come to just in that in that instance?

SPEAKER_02: 8:37

Or why should they?

SPEAKER_00: 8:38

Yeah. Right. So um so so a life annuity, which we're talking about, can be purchased with either compulsory or discretionary money. Discretionary money, as you've indicated, um, you know, the proceeds of the sale of a house, um, the sale of a business, or often what we see is when it comes to retirement, as one knows, you can have your tax-free portion, your 550,000 rand that you're allowed to take tax-free from your retirement fund, that can also be used, and that is discretionary money to buy a life annuity. Um, and we do see a number of um clients who come to us who want to buy a life annuity with discretionary money. Why would they do that? Well, there is a very strong tax advantage with buying a life annuity with discretionary money, in the sense that um a large component of the income that we pay, and when I say a large component, I'm talking in the order of about 60-65% of that income is considered tax-free. So it's considered to be a repayment of your own capital, and it's only the interest portion that is then subject to tax. Um, so it's a it's quite a tax-efficient way of structuring an income stream with your with your tax-free portion. Also, it's worth pointing out that um it depends on the type of life annuity that you buy with discretionary money. So, for example, if you buy a life annuity where there's a fixed escalation, for example, like a five or six percent fixed escalation.

SPEAKER_02: 10:07

And by fixed escalation, you mean it's five thousand rand this month, uh this year, and next year, it will go up by five percent. Is that what you mean?

SPEAKER_00: 10:15

Exactly. That's what we mean by fixed escalation. So there's also um a difference in the tax treatment of a life annuity if it's a fixed escalation or if it's an unknown increase. For example, if you buy a CPR linked annuity, CPR meaning an inflation linked annuity, or a with profit annuity, and I know we're going to talk um a little bit more about what a with profit is, but w when you buy in a life annuity where the increase is unknown, it's it it depends on what the inflation rate is or what the investment markets deliver, that becomes an even more tax-efficient uh life annuity because instead of about 60% being tax-free, it goes up to around 90% as tax-free. So it's just worth distinguishing the difference between um an unknown and an unknown increase.

SPEAKER_01: 11:04

So I think those type of products we're gonna unpack in the next few series, Clark. But thank you for telling us who just retirement is, and we look forward to hearing about the product in the next episode.

unknown: 11:15

Thank you.

SPEAKER_01: 11:16

Thank you. It's a pleasure. Cheers. Thank you for listening. If you have enjoyed this podcast and would like to subscribe, please visit our website www.growthfp.co.za The information we have provided in this podcast is our personal opinion. For more detailed information, please discuss your financial situation with a financial planner.