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A tax-efficient way to use your retirement annuity to pay for your grandchildren’s education

A tax-efficient way to use your retirement annuity to pay for your grandchildren’s education
Kenny Meiring
By Kenny Meiring
24 Aug 2023
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It is important that the investment portfolios inside a living annuity are correctly structured so that it can withstand the impact of inflation.

Question: I’ve been on pension for 10 years, during which time I have consistently contributed 27.5% of my income to an existing retirement annuity (RA). This has now grown to a substantial amount. I will not need this money, as the income from my company pension and other investments will be more than enough to meet my needs. I would like to use this retirement annuity to pay for my grandchildren’s education. What is the most tax-effective way of doing this?

Answer: By converting the retirement annuity into a living annuity, you will have an ideal vehicle to pay across a monthly, quarterly or annual amount to your children to fund your grandchildren’s education.  

I would recommend that you sit down with a financial planner who can model the ideal drawdown rate for the living annuity that would fund all or part of your grandchildren’s education.

You can use this living annuity to start paying for your grandchildren’s education while you are still alive, or you can have it start paying only once you pass away.

While you are alive


You would use the proceeds of the living annuity to fund a donation to your grandchildren. You must be careful that you do not exceed the donation limit of R100,000 a year. If your spouse is still living, you can funnel a further R100,000 through him or her as donations between spouses do not attract donations tax.

If the two of you donate more than R200,000, you must bear in mind that any excess will attract a donations tax of 20%.

Once you pass away


If you are comfortable that your retirement savings are sufficient to sustain your spouse, then you can make your grandchildren the beneficiaries of your living annuity when you pass away. They would each get their own annuity equal to their share of your living annuity.

There are several solid advantages here:

  • There will be no estate duty payable on the value of the living annuity.

  • There will be no executor fees charged.

  • Income tax will only be triggered once the income to the grandchildren exceeds R95,750 a year. Once this threshold has been breached, it will be at a rate that would probably be below that of their parents.


It is important that the investment portfolios inside the living annuity are correctly structured so that it can withstand the impact of inflation.  

It must also be able to handle the higher drawdown rates when the grandchildren go to university. I would recommend that you get a professional person to set this up and manage it before you pass away.  

If the living annuity has been correctly managed, once the grandchildren have finished their studies, they will have an ongoing stream of income for the rest of their lives, courtesy of your bequest.  This can make a difference in their lives. It could, for example, sustain them over a gap year or be used to help with the bond repayments on their first home. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected].

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.

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