Get a guaranteed income

An annuity pays you a guaranteed income for a defined period of time. You can choose how long you want the payments to last, for example, a lifetime or a fixed number of years. This option gives you peace of mind that you will receive a fixed income no matter what happens.

How annuities work

You can buy an annuity (also known as lifetime or fixed-term pensions) from a super fund or life insurance company using your super or other savings.

How much income will I receive?

The income you will receive is fixed when you purchase the annuity. Your income can be indexed to increase each year, either by a fixed percentage or in line with inflation.

How often are income payments made?

Income payments can be made monthly, quarterly, every 6 months or annually.

How long do income payments last?

You choose the term of the payments when you purchase the annuity, either the rest of your lifetime or for a fixed number of years.

What happens if I die?

You can opt for a 'reversionary' income stream so that payments continue to be paid to a beneficiary, such as a spouse or dependant, when you die. Note that they will not usually receive the same level of income payments that you did (payments are usually reduced).

Alternatively, you can choose the guaranteed period option. If you die within the specified guaranteed period, your beneficiary will receive the remaining income payments as an income stream or lump sum. Unlike the reversionary beneficiary option, the income payments received under a guaranteed period will not reduce and are only paid for the guaranteed period.

Will I qualify for an age pension if I receive income from an annuity?

It depends. The amount in your annuity will be assessed under the assets test for the age pension. Part of the income you get each financial year is also assessed under the income test. Contact a Department of Human Services' Financial Information Service (FIS) officer or your financial adviser to see whether your income will affect your pension. See social security for more details.

Changes to annuities in 2017

From 1 July 2017 there will be a limit on how much money can be held in an account-based pension or annuity. Details of the changes are available on the Australian Tax Office (ATO) website.

Benefits of annuities

  • You are paid a guaranteed income regardless of how markets perform
  • Annuities purchased with super money are tax free from age 60
  • Annuities purchased with super money before age 60 will have the taxable portion taxed at your marginal tax rate, however, you will receive a 15% offset.
  • Only the income component (if any) of an annuity purchased with non-super money is taxable
  • You don't pay tax on investment earnings
  • You have the peace of mind of a regular fixed income

Case study: Peter chooses a lifetime annuity with a guaranteed period

Older Man Beach Arm Up

Peter is 65 and married. He invests $200,000 in an annuity which will pay him a regular income of $800 each month, increasing with inflation each year, for the rest of his life. Peter likes that the annuity has a 15 year guaranteed period, which ensures his wife Christine will receive his income payment for a while should he die during that period.

Drawbacks of annuities

An annuity is a good choice if you want the security of a guaranteed income for a certain period of time. Seek financial advice to be certain it is the right choice for your needs and circumstances.

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Last updated: 18 Jan 2017