Your decision about where and how your money is invested in retirement could affect you in a number of ways in relation to:

• Tax-effective income
• Centrelink treatment
• Flexibility around how your assets will be left to your beneficiaries

The different types of income streams you may purchase or roll into are:

• Lifetime Annuity
• Fixed Term Annuity
• Account-Based Pension

To help explain the differences between these types of income streams, we have provided the following comparison:

Lifetime Annuity

Fixed Term Annuity

Account-Based Pension (ABP)

Super / Non-Super

Super & Non-Super (depending on age)

Super & Non-Super (depending on age)

Super only

Investment Choice

Cap Guaranteed / Fixed Interest / Property / Cash / Infrastructure

Cap Guaranteed / Fixed Interest / Property / Cash / Infrastructure

APRA regulated funds – range of assets, depending on provider’s menu choice

SMSFs – broad range of assets, based on Investment Strategy

Tax Treatment

Non-super – taxed at MTR on difference between income payment and deductible amount

Deductible amount = UPP – RCV*

RN

Super – as per ABP

Non-super – taxed at MTR on difference between income payment and deductible amount

Deductible amount = UPP – RCV*

RN

Super – as per ABP

Depends on age.

55 – 59 y/o – taxable portion assessed at MTR less 15% tax offset (if taxed element – no tax offset if untaxed element)

60+y/o – tax free unless portion of income is untaxed element

Term

Lifetime

Fixed No. of Years (between 1 and 50 years); or Life Expectancy

Until account balance is exhausted (depends on level of income drawn)

Income Payments

Obtained via quote from life provider. Can choose between

0 – 100 RCV*

Usually no RCV so payments are a combination of capital + interest. Payments are fixed at the outset and can be indexed or fixed.

Obtained via quote from life provider. Can choose between

0 – 100 RCV*

If no RCV, payments are a combination of capital + interest. Payments are fixed at the outset and can be indexed or fixed.

If RCV100 payments are a return of interest either throughout term or at end of term.

Minimum annual payment factor (%) based on person’s age as at 1 July each year. Maximum = account balance

Centrelink Treatment(all income streams post-Sept 2009 are fully assessable)

Assets Test:

Full account balance counted

(post-Sept 2009)

Income Test:

Annual income less deductible amount

(special income test applies if Government complying lifetime)

Assets Test:

Full account balance counted

(post-Sept 2009)

Income Test:

If term is > 6 years – annual income less deductible amount

If term is < 6 years – deeming rules apply

Assets Test:

Full account balance counted

Income Test:

Annual income less deductible amount

Access to Capital

Limited. Some providers allow access within 10 – 20 year time from commencement, depending on product

(no if complying annuity)

YES if non-complying annuity

Full or partial commutations allowed

Death Benefits

YES, if within capital guarantee period.

No, if after capital guarantee period.

YES. Commutable on death with remaining balance paid to nominated beneficiary/ies (if superannuation annuity, beneficiaries must be defined under SIS regulations).

YES. Commutable on death with remaining balance paid to SIS dependents. If reversionary, pension continues to surviving spouse until their death – death benefit then paid to dependents or estate.

Actuarial Certificate

YES

NO

NO

Management Fees

NO

NO

YES (if investing in managed investments)

Source: RBS Morgans; Challenger; Kaplan Financial Planning Guide April 2013

*RCV = Residual Capital Value; UPP = Undeducted Purchase Price; RN = Relevant Number; MTR = Marginal Tax Rate

© Power Tynan Pty Ltd