An allocated pension is one of the income streams that can be purchased from your superannuation funds when you retire. How do allocated pensions work and how do you choose the correct one?
You can purchase allocated pensions (also known as an account-based pension or account-based annuity) from one of the several investment companies in the market. When chosen correctly and the product is fully understood, they can be a flexible and tax-effective way to receive a regular income in retirement.
Allocated pensions earn money from investments and any earnings are not taxed. In addition, if you are over 60, any income received will not be taxed either. Tax concessions are generally available for those under 60. You are required to withdraw a minimum amount from your pension each month, which is based on your age and account balance. You can do what you wish with this money, re-investing in another product is an option but you must consider your tax obligations.
The idea is that you withdraw enough to support yourself and ultimately, your account balance is reduced and emptied. The regular amounts allowed to be withdrawn are set each year. There is no maximum to what you can withdraw and minimum withdrawals are as follows:
For more information on how your fund may be taxed, see How your super payout is taxed on the Australian Tax Office website.
When considering an allocated pension, the more research you can do the better. There is plenty of information out there, just make sure it’s independent. FIDO, the website of the Australian Securities & Investments Commission (ASIC) which offers financial tips, has a handy Account-based pension calculator.
This is a model, not a prediction, but will give you an idea of how you can benefit from an allocated pension, what are the fees involved. It also allows you to compare different drawdown patterns and two or more products.
Once you have this information, AboutSeniors cannot stress enough the importance of obtaining independent financial advice. Remember it’s your money and your future and ultimately you are the one who may lose out if you make the wrong decision.
For more information on allocated pensions, visit FIDO.