Section 37 Living Annuity Transfer in South Africa: How to Move Providers Without Losing Income

A Section 37 transfer of a living annuity is a tax-free, insurer-to-insurer transfer of your living annuity policy from one South African life insurer to another. It’s permitted under Section 37 of the Income Tax Act, and it doesn’t trigger tax or interrupt your retirement income structure.

If you’re already drawing an income from a living annuity and want to switch providers, this is almost certainly the mechanism that applies to you. The process involves notifying your current insurer, selecting your new provider and underlying funds, and arranging for the policy value to move across while your income continues. No tax is triggered on the transfer itself. Your income, however, remains taxable in the normal way.

Before you dive in, it helps to understand what a living annuity is and how it works. And if you haven’t yet retired, it’s worth mapping out the sequence of decisions at retirement before committing to any product.

The sections below cover the full process, the tax treatment, beneficiary rules, what can go wrong, and the questions readers most often ask about this topic.

What Is a Living Annuity and Why Would You Want to Switch Providers?

A living annuity in South Africa is a retirement income product where you remain invested in underlying unit trust or other approved funds after retirement. You draw an income between 2.5% and 17.5% of your policy value each year, and your remaining capital passes to your nominated beneficiaries when you die.

This definition matters, because many readers arrive at this topic having confused living annuities with related but different products. A retirement annuity (RA) is a savings vehicle used before retirement; it’s not the same as a living annuity, and you cannot simply cancel it and recover your money. A life annuity is a product where you hand your capital to an insurer in exchange for a guaranteed income for life; once purchased, it generally cannot be transferred or reversed. A living annuity is neither of these. It remains your capital, invested on your behalf, and the Section 37 transfer mechanism exists precisely because the legislature recognised that South African retirees should be able to move between providers without being penalised.

Common reasons to consider a switch include high fees at your current provider, limited fund choice, poor service, or wanting to access a different investment platform that better matches your strategy. Reviewing sustainable living annuity drawdown rates is a good starting point, because the drawdown rate you are drawing relative to your investment return is often more important than the provider you’re with. That said, fees compound over time, and a meaningful difference in annual charges is a legitimate reason to move.

Understanding your full range of income options in retirement before switching also ensures you’re not transferring into a product that doesn’t match your actual retirement income needs.

What the Section 37 Transfer Actually Means Under the Income Tax Act

Section 37 of the Income Tax Act is the specific provision that permits a tax-free transfer of a living annuity from one registered insurer to another in South Africa. This is the section you need. It is not Section 2037, and it is not Section 72.

This distinction matters because a number of readers searching for information about living annuity transfers find references to Section 2037 or Section 72 and assume these govern the same process. They do not. Section 72 of the Income Tax Act deals with deemed dividends and has no bearing on living annuity transfers. Section 2037 is not a provision of the Income Tax Act at all; it may be a reference readers have conflated from other regulatory contexts. If an adviser, insurer document, or online source cites either of those sections in relation to switching your living annuity provider, that’s a red flag. Ask for the correct reference.

Section 37 of the Income Tax Act sets out the conditions under which a transfer can be made without triggering a taxable event. The key conditions are straightforward:

• The product being transferred must qualify as a living annuity under the Act.
• The transfer must be from one registered insurer to another.
• No cash is paid to you during the transfer; the value moves directly between insurers.
• The receiving product must also be a living annuity that meets the statutory requirements.

When all of these conditions are met, the transfer is treated as a continuation of the original policy rather than a disposal. That’s why no tax is triggered.

The definition of a living annuity under South African tax law also specifies the annual drawdown rate limits (2.5% to 17.5%) and the rule that any remaining capital at death passes to nominated beneficiaries rather than to your estate. These rules follow the policy to the new provider. You don’t lose your status or your rights simply because you move.

Recent tax changes affecting retirement products may also affect the landscape around retirement income, so it’s worth staying current on legislative developments before initiating a transfer.

How to Transfer Your Living Annuity: A Step-by-Step Process

Transferring a living annuity in South Africa involves a defined process that typically takes four to eight weeks from start to completion. The steps below reflect standard industry practice across South African life insurers.

Before you start, review your current policy’s terms carefully. Check for any surrender charges (these are rare in modern living annuities but can exist in older policies), fund notice periods, and how your income is paid during the transfer.

Step 1: Decide on your new provider and fund selection.

Research the new insurer’s platform, fund range, fee structure, and service track record. Providers vary considerably in annual management charges and investment choice. Comparing low-cost passive investing platforms in South Africa alongside more full-service options helps you understand the trade-off between cost and guidance. A fee comparison across South African retirement providers will show you the impact of charges on your capital over time. If you want a broader, more traditional range of options, Old Mutual’s retirement product range is also worth reviewing.

Step 2: Complete the new provider’s transfer application.

The new insurer will provide a transfer instruction form or a digital equivalent. You’ll need your current policy number, personal identification, bank account details for income payments, and your fund selection for the new policy.

Step 3: Notify your current insurer.

In practice, the new insurer often communicates directly with the outgoing insurer. You may be asked to sign a transfer authority. Confirm who is responsible for this communication before you assume it has happened.

Step 4: Tax directive application.

The new insurer applies to SARS for a tax directive to determine the correct PAYE rate for your income payments. This happens in the background but is essential; without a valid directive, the insurer cannot pay your income at the correct rate.

Step 5: Income during the transfer period.

This is where readers are most often caught off guard. During the four to eight weeks the transfer takes, your income payments may be paused or delayed. Ask both insurers explicitly what happens to your income during this period. Some providers pay income until the actual transfer date; others do not. Plan your cash flow accordingly before you initiate the switch. To switch retirement annuity providers in South Africa without an income gap, timing your transfer to start immediately after a drawdown payment is one practical approach.

Step 6: Confirm the transfer and update your beneficiaries.

Once the new policy is in force, confirm the policy number, fund allocation, and drawdown amount in writing. Then re-enter your beneficiary nominations immediately (see the section on beneficiaries below).

How Income From a Living Annuity Is Taxed During and After a Transfer

The Section 37 transfer itself is completely tax-free. No income tax, no capital gains tax, and no transfer duty applies to the movement of your policy value between insurers.

Your income from the living annuity, however, is always taxable, before, during, and after the transfer. Living annuity income is treated as gross income in your hands and taxed at your marginal income tax rate according to the SARS tax tables. There is no special rate or exemption simply because the income comes from a living annuity.

The mechanism that makes this work administratively is the tax directive. Each insurer is required to apply to SARS for a directive that specifies the correct PAYE deduction rate for your income. When you transfer to a new insurer, the new provider must apply for a fresh directive before it can pay you. This is the detail that most articles skip over, and it’s precisely why there can be a delay in income payments during the transfer period.

If there is any income paid to you without a valid directive in place, the insurer is required to withhold at the maximum marginal rate (currently 45%). This can cause a short-term cash flow problem. The correction happens through your annual tax return, but you need to be prepared for the possibility during a transfer.

A common reader question is: “What are the tax implications when transferring annuity ownership?” The important clarification here is that a Section 37 transfer does not transfer ownership of the policy from one person to another. It transfers the policy from one insurer to another, with you remaining the policyholder throughout. The concept of “transferring annuity ownership” to a spouse, for example, is not what Section 37 covers. That’s a different legal question, addressed in the next section.

You can estimate your annuity income and tax position using the tools on this site. It’s also worth understanding how the two-pot retirement system affects your tax if you have retirement fund savings that straddle the pre- and post-two-pot regimes.

Living Annuity Beneficiaries: What Happens to Your Policy When You Die or Divorce?

When you die, your living annuity does not form part of your estate. Instead, the remaining capital is paid out to your nominated beneficiaries according to the options permitted under the Act. Beneficiaries can receive a lump sum (taxable), take out their own living annuity, or take a combination of the two.

This is one of the most valuable features of a living annuity in South Africa, and it is directly affected by a provider transfer. Your beneficiary nominations do not automatically carry over to the new insurer. You must re-enter them on the new policy as soon as the transfer is complete. If you die during the transfer period before beneficiaries have been re-nominated on the new policy, the distribution will still be governed by the Act, but the practical administration can become complicated. Do not leave this step until later.

A question that comes up frequently is whether a living annuity can be transferred to a spouse. The answer depends on what you mean. A Section 37 insurer-to-insurer transfer does not move a policy from one individual to another; it moves it between providers. A Section 37D divorce order is a completely different legal instrument, governed by Section 37D of the Pension Funds Act, which deals with the division of pension fund interests on divorce. These are different statutes with different purposes, and they are frequently confused.

A surviving spouse can, as a nominated beneficiary, choose to take the remaining capital as their own living annuity after the policyholder’s death. But this is a new policy, not a continuation of the original.

Reviewing income planning options for South African retirees can help you and your spouse plan for the income implications of this structure before it becomes urgent.

Section 37 Transfer vs. Common Alternatives: A Side-by-Side Comparison

The Section 37 transfer is not your only option when you’re unhappy with your current living annuity provider, but for most South African retirees it is the only practical one. Here is how it compares to the alternatives:

One important clarification: you generally cannot simply cancel a living annuity and recover your cash. Once your retirement fund capital has been used to purchase a living annuity, the legislation does not permit a lump sum withdrawal except in very limited circumstances, such as where the policy value falls below a statutory minimum threshold. This is where readers confuse living annuities with retirement annuities. A retirement annuity also cannot be cancelled and cashed in before age 55, with narrow exceptions. Neither product gives you unrestricted access to your capital.

Review sustainable withdrawal rates for living annuities before deciding your next step, and consider alternatives before switching retirement products if you’re genuinely questioning the product structure rather than just the provider.

What Can Go Wrong: Risks and Disadvantages to Know Before You Switch

Switching your living annuity provider is usually straightforward, but there are real risks that are worth naming before you sign anything.

Income gap. As covered in the process section, your income payments can pause during the transfer. If your monthly budget is tight, even a four to six week gap can cause genuine hardship. Plan ahead and hold a cash reserve if possible.

Fund misalignment. Moving to a new platform and selecting funds without understanding the new investment mandate can leave you with a more aggressive or more conservative portfolio than you intended. Your drawdown rate and investment return need to stay in balance; a mismatch is the primary way living annuities run out of capital prematurely.

Surrender charges on older policies. Some older living annuity policies written before the industry standardised on fully liquid structures include surrender penalties. Check before you initiate.

Lost beneficiary nominations. As noted above, beneficiary records do not transfer automatically. This is a small administrative step with potentially large consequences.

Service disruption. Not every insurer processes transfer instructions at the same speed. Some readers report delays beyond the standard eight weeks, particularly where documentation is incomplete.

On the specific question of life annuity disadvantages: a life annuity has no flexibility, no residual capital for beneficiaries, and income that may not keep pace with inflation unless an escalation clause is built in. These are real disadvantages, but they are not relevant to a Section 37 living annuity transfer. If you’re considering converting your living annuity to a life annuity, that’s a separate, largely irreversible decision.

Reviewing how Allan Gray structures its retirement products and Momentum’s living and retirement annuity features can give you a clearer picture of provider differences before you commit to a switch.

Frequently Asked Questions About Section 37 Living Annuity Transfers

What is the process for transferring a living annuity?

A living annuity transfer in South Africa is governed by Section 37 of the Income Tax Act, not Section 2037 or Section 72. You select your new provider, complete their transfer application, and the two insurers handle the policy value movement directly. The process typically takes four to eight weeks. Your income may pause during this period, so plan your cash flow in advance.

How is income from a living annuity taxed?

Living annuity income is taxed as ordinary income at your marginal rate. Each insurer applies for a SARS tax directive to determine your correct PAYE deduction. The transfer itself is tax-free, but your income payments before and after the transfer remain fully taxable. You can estimate your annuity income and tax position to understand what to expect.

Can a living annuity be transferred to a spouse?

Not during your lifetime through a Section 37 insurer-to-insurer transfer. Section 37 moves a policy between insurers with the same policyholder. If you die, your nominated surviving spouse can elect to receive the remaining capital as their own living annuity. Divorce-related pension fund division is governed separately under Section 37D of the Pension Funds Act, which is a different statute.

What are the tax implications when transferring annuity ownership?

Section 37 does not transfer annuity ownership from one person to another; it transfers the policy from one insurer to another for the same policyholder. No tax is triggered by the transfer itself. Income drawn after the transfer continues to be taxed at your marginal rate, and the new insurer will apply for a fresh SARS tax directive to ensure the correct PAYE rate.

What rules govern living annuity beneficiaries?

You can nominate any person or persons as beneficiaries of your living annuity. On your death, they can elect to receive a lump sum (taxable), take a living annuity of their own, or a combination. Your nominations must be re-entered when you move to a new provider; they do not carry over automatically. Shari’ah compliant investment options in South Africa are available within the living annuity structure for beneficiaries who require them.

Can a retirement annuity be cancelled to recover funds?

No, not in most circumstances. A retirement annuity cannot be accessed before age 55 except in cases of serious illness, emigration under specific tax residency rules, or where the fund value is below a statutory minimum. You cannot simply cancel it and recover cash. Many readers confuse this with a living annuity, which is also inaccessible as a lump sum once in payment (except below the minimum threshold). These are separate products with separate rules.

What are the disadvantages of a life annuity?

A life annuity provides guaranteed income for life but at the cost of flexibility. You hand your capital to an insurer permanently; there is no residual benefit for your beneficiaries and no option to access the capital for emergencies. Income may not keep pace with inflation unless a built-in escalation clause is included, and that escalation usually reduces the starting income. A life annuity is not transferable under Section 37.

The Key Points to Take Away

A Section 37 transfer of a living annuity is a tax-free mechanism that allows you to move your policy from one South African insurer to another without triggering tax, without losing your income structure, and without changing the underlying legal nature of your retirement income product.

The key points to keep in mind:

• The transfer is governed by Section 37 of the Income Tax Act, not Section 2037 or Section 72.
• The transfer itself is tax-free. Your income is always taxable.
• Income payments may pause for four to eight weeks during the transfer. Plan your cash accordingly.
• Beneficiary nominations must be re-entered on the new policy.
• A Section 37 transfer moves the policy between insurers, not between individuals.
• You cannot cancel a living annuity or a retirement annuity and simply recover cash.

After you transfer, review your drawdown rate against your actual investment returns to confirm that your withdrawal remains sustainable. And if you’re still working through the broader picture of what retirement should look like for you, the full sequence of retirement decisions in South Africa is worth reading in full.

This article provides general information about living annuity transfers in South Africa. It is not personal financial advice. Your specific circumstances, tax position, and retirement needs may differ materially from the general principles described here. Speak to a qualified financial adviser before initiating any transfer.