If you have any health issues, smoke or have been working a stressful job, you could improve your pension in retirement by buying what is known as an enhanced pension or annuity with all or some of your savings.

Pension and retirement annuity fund members have to buy a monthly pension or annuity at retirement with at least two-thirds of their savings.

At retirement you can choose to buy a pension from a life assurer that guarantees to pay you a certain amount or a certain amount with increases for the rest of your life.

These pensions are known as guaranteed annuities.

If you don't want to buy a guaranteed annuity, you have to take the much more risky option of investing your savings in what is known as an investment-linked living
annuity and drawing a more uncertain income from these investments.

Alternatively, you can split your savings between the two annuity types, covering your basic needs with a guaranteed annuity and taking more chances with investments to provide an income boost when markets favour you.

What many people don't know is that if you have any health issues, are a smoker or you have worked in a job with a lot of stress such as a nurse or policeman, you are likely to qualify for a higher guaranteed pension or enhanced guaranteed annuity.

This may sway your decision on whether to take your chances in investment markets or to take out a guaranteed annuity.

In South Africa, only two lesser known life assurers provide enhanced guaranteed annuities: Paramount Life and Just South Africa.

Just SA says pensioners who suffer from heart conditions or have had a stroke - the leading cause of deaths in South Africa - have been able to obtain enhanced annuities with an income increase of on average 6.79% and 4.95% higher than what they would have received from an ordinary annuity (See table above).

A financial adviser with one of the larger financial services companies told Sowetan
Money that he found more than 50% of his clients qualified for enhanced annuities offered by the two providers with income between one and 30% more than the income from an ordinary annuity.

On average, the income is more than 10% higher than that which ordinary guaranteed annuities provide, he said.

Most South Africans believe they will get the best pension and leave their kids an inheritance if they use a living annuity to provide a pension at retirement.

But these investments come with all sorts of risks - the biggest of which is that you withdraw from your savings to such an extent that you are no longer able to draw the income you need.

You also run the risk of getting bad returns from the market and making bad investment decisions, particularly as you get older and less capable of handling investments.

All this creates a lot of uncertainty about the income you will receive unless you have a very large amount to invest at retirement.

Many retirees shun guaranteed annuities because they want to leave a legacy or because the income is lower than what they need.

They invest in living annuities instead, hoping that the stock markets will deliver good returns and enable them to draw a good pension.

But, what many retirees do not realise is that the risk they take when trying to draw an income from investments is that they could land up with a dwindling income and instead of leaving their children an inheritance, land up costing their children if their children need to supplement the dwindling income.