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Income streams for the retireeAn income stream is a regular series of payments derived from drawing down capital, earnings on that capital or a combination of both. A retiree can receive an income stream from superannuation or from non superannuation money. There are many different types of retirement income streams but the most common are as follows: Allocated Pension (Commutable) An allocated pension is an investment which pays a regular income stream from a superannuation fund. A minimium pension payment is required. This minimum payment is caluculated on 1st July each financial year and is based on your age and account balance. No maximum limits apply, hence you can draw down the full account balance if you so wish. Choice of the underlying investment strategy is important, as there must be sufficient liquidity to pay the pension when it is due. The level of growth assets within the investment also needs to be considered to try and maximise the life of the pension. Advantages include:
A key feature of an allocated pension is control. The owner can control the level of payment, the investment stratgey and whether to make cash withdrawals or cancel the arrangement altogether. On death the remaining assets are under the control of the estate. Transition to Retirement Allocated Pensions (Non Commutable) You will have the option of accessing your superannuation before you retire via a transition to retirement allocated pension. Taking such a pension enables an individual who has reached 55 years of age (the current preservation age) or over to access their superannuation benefits as a non-commutable allocated pension while continuing to work. Non-commutable income streams are somewhat restrictive and have characteristics that you must comply with. You must continue to take an annual pension income (the amount of which is set by government legislation) and you cannot take out additional lump sums from this pension until you meet a superannuation condition of release such as being permanently retired or reaching 65 years of age. The minimum pension standards will be the same as the ordinary allocated pension standards. However the maximum pension standard will be set at 10% of the account balance per year. Immediate Annuities Immediate annuities provide an income stream for which the terms and conditions are fixed in advance and there are few opportunities for them to be changed once the income stream starts. The investor pays a lump sum to a life office and in return receives a series of defined payments (an income stream) over a given period of time. The control of the money and the risks associated with this investment are passed to the annuity provider. An immediate annuity can be purchased with an ETP rollover from a superannuation fund or ordinary money such as after tax income or accumulated savings outside superannuation. A major key feature is security. Income payments are guaranteed for the term of the contract, and the member does not need to be involved in managing the income stream. Cashing Out of Superannuation Monies An alternative option is to take money out of superannuation, pay the ETP tax and reinvest the proceeds outside superannuation. Investments outside the superannuation environment can also generate a regular tax effective income. The key to this strategy is to invest in assets that will be income producing, such as fixed interest, dividend paying shares and listed property trusts. However adopting this strategy means forgoing tax advantages associated with monies invested in the superannuation environment.
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AFSL 222690 | ABN 38004531800