Allocated pensions and Annuities
An allocated pension or annuity is one of a number of products that you can buy with a lump sum from a superannuation fund, or paid from a self-managed superannuation fund, to give you an income during your retirement.
Setting up an allocated pension or annuity
- Allocated pensions are purchased from superannuation funds using superannuation money (that is money paid out from a superannuation fund or retirement savings account (RSA's)). Money from these sources is known as an eligible termination payment or (ETP). Allocated annuities can be purchased from a life insurance company using superannuation money.
- An investment account is set up with this money from which you draw a regular income. Minimum and maximum limits are set on the income that can be drawn each year. These limits are set based on your age. Each year the income selected must be within these limits.
- You may choose how your money is invested by the fund manager (known as 'investment choice'). Fund managers have different investment strategies, which you can select, that carry different levels of risk and, therefore, potentially different levels of return.
- Income is payable until there is no money left in the account. If you die before this happens, the account balance will be paid out as a lump sum to your dependant, to your estate, or the income payments can continue to be paid to a beneficiary, such as a spouse or dependant. You can choose a reversionary beneficiary for the income stream, such as a dependant or spouse.
- Allocated pensions and annuities give you the flexibility of having access to your money at any time. You can withdraw some or all of the money as a lump sum (this is known as full or partial commutation), though there may be tax consequences.
- The level and duration of income payments is not guaranteed. This is because the account balance is affected by withdrawals, fees and investment returns.
- Income from an allocated pension or annuity is assessable income for tax purposes. However, the amount of assessable income may be reduced by a deductible amount (that is an amount excluded from your assessable income), which, generally speaking, represents the return of your personal after-tax contributions (known as undeducted contributions).
- For income streams purchased with superannuation money only, an additional tax offset of 15% may also apply to some or all of the income stream. This rebate will reduce your tax payable. In most cases, you must be over age 55 to be eligible for the offset.
For more information on allocated pensions and annuities, contact us to arrange a free initial interview.