Annuities
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
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.
Related links
Last updated: 18 Jan 2017
