I found this on MoneyWeb:
Managing the money that is paid to you upon retirement requires careful planning and an honest, realistic assessment of your current situation and whether you are able to maintain your standard of living given what you have put away.
Upon retirement, the Pension Funds Act obliges you to use two thirds of the money paid out from your pension to buy an annuity; hence the name compulsory purchase annuity (the other type is a voluntary annuity, where you can choose to invest a lump sum of money – the other being third paid out to you). An annuity is essentially a pension too – you take the amount you receive upon retirement and purchase an income, which can be paid out on a monthly, quarterly, bi-annual or annual basis.
The type of compulsory annuity that one chooses will depend on interest rates and the level of risk that one is able and willing to take.
The main choices are between:
A fixed life (conventional) annuity: this annuity provides a fixed income for a guaranteed period. The income paid on this annuity depends on the rate offered by the life assurer you choose. This rate, in turn, is usually a bit below the prime rate of interest. You can opt to build “inflation-fighter increases” into your life annuity: although this will lower the income received, pensioners will be protected against inflationary price increases. You could opt for a single life fixed annuity, which dies with you (that is, it isn’t paid out to a beneficiary) or a joint life fixed annuity, which provides income for a guaranteed period and thereafter as long as your beneficiary is still alive. You could choose to have the amount paid out to your beneficiary as a lump sum.
A living annuity: the income paid by this annuity is linked to the performance of underlying assets, so when they perform well, you get more, but when they don’t, one can be caught out badly. The pensioner would receive variable income, depending on the performance of those assets, and has a choice of drawing an annual income of between 5 and 20%.
This can be hugely problematic, however, as people may draw more than what the annuity returned in the year; this would eat into the capital, and if you live a long life, you may be caught with no money.
Living annuities need constant, careful monitoring, and one needs advice on the actual investments underlying the annuity, or else the invested capital could be lost.
Also, one has to be disciplined and take an income relative to the returns on the portfolio.
For example, if the return on the living annuity is 10% and you’re drawing 12% per annum, you would be eating into the capital initially invested and could land up with nothing.
Life assurers calculate the rates of return on life (conventional) annuities on a weekly basis, with the rates based on how South African interest rates are performing; the higher the interest rates, the higher the pay out from the annuity would be.
The big four assurers change their rates slightly on a weekly basis, and you can obtain this data from the finance pages of the weekend papers.
One should also realise that the time of the month you choose to have the money paid out to you makes a difference. If you choose to be paid in arrears, you will be paid out a little more money because the amount will have accrued interest.
However, on any other term except monthly, it makes sense to be paid in advance, as one can’t afford to wait for the money.
Planning for what to do with your pension money is a highly individualised process, and one that should start at least a year before you retire.