According to Sam Robson of Glenrand MIB, a living annuity can only be utilised at retirement, typically when a retiree is compelled by law to invest in what's known as a 'compulsory purchase annuity'.

This has to be done with two-thirds of the maturity value from a retirement annuity (RA) or pension fund — many provident fund rules, though not all, allow the retiring member to invest in such annuities. This is an aspect you need to be clear about.

Basically, a living annuity should be viewed as an alternative to traditional annuities. Firstly, the investor can decide how the money should be invested. The choices are numerous and range from unit trusts, guaranteed funds, privately-managed share portfolios, cash, and alternative investments. Offshore investment portfolios can also be utilised, without having to make use of R750 000 allowance.

Living annuities are also flexible — the amount of income you draw from them can be adjusted each year and the capital that remains at death can be bequeathed to dependants. The big trick, however, is to avoid drawing too much from the annuity, thus eroding the capital and gradually running the fund down. That takes discipline and you have to be fully aware of what the fund is earning so that you don't exceed its income.

Robson suggests that the amount should not exceed more than about seven percent of the capital, assuming the fund is earning 10 or 11 percent per annum. You would therefore receive a good income, while allowing the fund to grow at the same time.

That in turn suggests that you need to invest in safe investments. For instance, taking a flyer on the stock market with the funds in the annuity is not a good idea, while putting the funds into a highly rated money market fund that earn solid, safe returns would be a good move. It makes sense to get the best advice you can on this issue.

Perhaps some of the biggest advantages of a living annuity are the tax benefits. Although sometimes overlooked, these are particularly attractive to high net-worth individuals from a tax and estate planning point of view.

Any interest earned is tax free irrespective of the amount of interest earned or if the entire portfolio is in a money market fund or interest bearing account. All other retirement funds are subject to the retirement fund tax levy (currently 18 percent).

Portfolio changes can be made at any time and are exempt from CGT. In the event of sequestration, the capital is protected by law against creditors and on death, the capital is exempt from executors' fees and estate duty.