By André Lubbe – Certified Financial Planner
Updated 2 July 2025

A complete guide for beneficiaries on what happens to a living annuity after death, including payout options, tax rules, and admin implications.

A living annuity is not only a flexible retirement income product but also a valuable estate planning tool. Unlike a life annuity, a living annuity allows any remaining capital to be passed directly to nominated beneficiaries upon the annuitant’s death—potentially avoiding estate duty and executor’s fees. What happens to the living annuity after death depends largely on whether beneficiaries have been nominated, and the decisions they make thereafter.

If No Beneficiaries Were Nominated

• The proceeds fall into the deceased’s estate.
• They become estate-dutiable and subject to executor’s fees.
• Distribution is based on:
  – The deceased’s will, or
  – Intestate succession laws (if no valid will exists).

If Beneficiaries Have Been Nominated

• The proceeds do not form part of the deceased’s estate.
• They are not estate-dutiable and are not subject to executor’s fees.
• Funds are passed directly to the nominated beneficiaries under the Long-Term Insurance Act.
• Beneficiaries can typically access the funds relatively quickly, without waiting for the estate to be wound up.

Options for Nominated Beneficiaries

Once the annuitant passes and beneficiaries are identified, three main options are available:

Option 1: Take the Full Benefit as a Cash Lump Sum

The entire annuity is withdrawn at once and taxed in the hands of the deceased according to the retirement lump sum tax tables (cumulative across all retirement funds) as follows, which has been taken from the SARS website as of March 2025: 

Taxable Amount	Tax Rate
R0 – R550 000	0%
R550 001 – R770 000	18% of amount above R550 000
R770 001 – R1 155 000	R39 600 + 27% of amount above R770 000
R1 155 001 and above	R143 550 + 36% of amount above R1 155 000

Any disallowed or excess retirement fund contributions by the deceased annuitant may be deducted before calculating the lump sum tax.

Option 1 is appropriate when the beneficiaries need immediate access to the cash for medical bills, debt, or investment opportunities or when the beneficiaries are young and prefers flexible use of funds outside of retirement regulations.

Option 2: Transfer to a New Living Annuity

The funds are transferred tax-free to a new living annuity in the beneficiary’s name. The transfer process is relatively fast, and the beneficiary does not need to wait for the estate to be wound up before they have access to the inherited funds.

The beneficiary becomes the new annuitant and selects a drawdown rate (between 2.5% and 17.5% per annum) and may select to receive income monthly, quarterly, biannually, or annually. The drawdown rate and frequency can only be altered once a year on the anniversary date of the living annuity. If the beneficiary already has an existing living annuity, they can choose to consolidate it. The income drawn is taxed at the beneficiary’s marginal income tax rate.

Option 2 is appropriate if the beneficiary wants to preserve capital for long-term retirement income and is particularly beneficial for older beneficiaries or those nearing retirement.

Option 3: Combination of Lump Sum and New Living Annuity

The beneficiary may elect to withdraw part of the funds as a lump sum (taxed per the above table) and transfer the remainder to a new living annuity. This option blends liquidity with ongoing income generation and gives the beneficiary the flexibility to manipulate the amount of the chosen lump sum to ensure the smallest tax liability.

Option 3 is appropriate when immediate expenses need to be covered, but there is still a desire for future income. It offers the beneficiary flexibility and partial tax efficiency.

Documentation Required to Process the Death Claim of the Annuitant 

To initiate the claim, beneficiaries typically need to provide:

1. Certified copy of the annuitant’s death certificate
2. Copy of the deceased’s ID
3. Beneficiary’s ID
4. Proof of address
5. Completed beneficiary claim form
6. Bank confirmation letter (beneficiary’s account)
7. If transferring to a new annuity:
   • Completed annuity application forms
   • Investment instructions

Tip: Delays often occur due to missing or outdated documentation, especially if nomination forms weren’t updated. It is vital that annuitants review their beneficiary nominations regularly. 

This content is for informational purposes only and not financial advice. Always consult a licensed adviser before making financial decisions.