Question:
I transferred my preservation fund and invested in a living annuity. I'm caught in a debt trap and face the possibility of bankruptcy and losing my home.

What are my options with regards to my investment in the living annuity which is about R700 000? Can I apply to have the amount owed on my house withdrawn to settle the debt?

I am 61 years old.

Answer:
If it?s any consolation, you are not alone in your predicament. So few people retire with adequate resources and, before long, are in a bit of trouble.

Unfortunately, your pension benefits are protected by law from creditors and so they may attach your home instead. This is especially true if the debt you are talking of is the bond on your home, because the mortgage bond documentation clearly states that if you default on payment they can take your home in lieu of payments due. Your pension is even protected from yourself, so you cannot apply to have a lump sum paid out, even under dire circumstances.

One possible way to use an annuity to avoid losing one?s home is to have the monthly annuity increased by the amount that is needed to pay the debt. The maximum one is allowed to take out is 17.5 percent per year. On an annuity value of R700 000 this could be about R10 208 per month.

The annuity percentage can only be changed annually (usually on the anniversary date each year), so find out when this is due. This should be a short term solution if possible because the capital will be under pressure at those annuity rates and the funds may run out long before you die.

I?m not sure if you are retired, were retired but had to work again or are currently working but not earning enough to cover your living expenses and debts. Either way, you need to try and figure out how to make more money so that you can build up your pension again after the debt has been repaid. Someone in this predicament could consider renting out any spare rooms to lodgers; or the garage/outbuildings for storage. Try to think of ideas to make the house pay for itself!

If you can pay a low rental in a flat and receive a higher rental for renting the house out, then (temporarily) move out and receive a rental income. Investigate renting the house out fully furnished to a mine or large business who use contractors and are always looking for cheaper accommodation than a hotel.

A good philosophy to follow in times like these is not to focus on what you had and have lost, but on what you have now and can build up from there. I hope this has been useful.

acsis Limited is an authorised financial services provider. The response to the question covers some of the issues in a general and factual manner and does not constitute advice. It is important to consult with a financial planner who, after an analysis of the individuals? personal needs, goals and circumstances, will be able to provide comprehensive and appropriate advice.