Lifetime income streams - key points
There are two main types of lifetime income streams:
1. lifetime superannuation pensions bought from a super fund, and
2. lifetime annuities, bought from a life company with your super or savings.
Your rate of Age Pension is calculated using both an income test and an assets test. Not surprisingly, the test resulting in the lowest rate will apply.
Lifetime income streams are different to many other types of investments, such as bank accounts, account based pensions and investment properties, where generally 100% of the asset is assessable.
Certain lifetime annuities receive more favourable treatment from the assets test.
“Under the social security assets test, generally 60% of the purchase price of certain lifetime annuities will count as an asset through to age 84, or for a minimum of five years. From then on, only 30% of the purchase price counts as an asset”, explains Andrew Lowe, Head of Technical Services at Challenger. “Under the social security income test, 60% of any payment you receive from this type of income stream is assessable as income for social security purposes”.
While we all have unique needs, Andrew gives the example of a retiree who was able to boost their annual Age Pension entitlement from $14,500 to $19,000 by investing part of their savings in a lifetime annuity.
“That extra $4,500 of Age Pension boosts their retirement income and how long their savings will last,” he says.
You could gain thousands a year in increased Age Pension – simply from changing how you structure your assets.
Your financial adviser can help you calculate your total spending requirements in retirement, including both essential and discretionary spending.
“They’ll work out that number so you can compare it to the maximum Age Pension rate,” Andrew says. If there’s a gap, then a lifetime annuity can help cover your basic living costs for life.
“Imagine a couple that’s eligible for the maximum rate of Age Pension – about $37,000. But if their essential spending was $40,000 they could buy $3,000 of extra income a year to fill the gap,” added Andrew.
Challenger’s Retire with confidence tool is a simple and easy way to get your retirement income planning started online. Put your retirement income to the test and get results that show:
whether you may be eligible for the Age Pension or an increase in payments;
how long your retirement savings may last; and
how much annual income you could guarantee for life by adding a lifetime income stream to your retirement income plan.
Disclaimer: Age Pension benefits described above will not apply to all individuals. Age Pension outcomes depend on an individual (or couple’s) personal circumstances and may change over time. While lifetime income streams may immediately benefit some Age Pension eligible retirees who are assessed under the assets test, in later years, if assessed under the income test, any ongoing Age Pension benefits may be reduced. Consult your financial adviser about potential impacts on your personal circumstances and whether a lifetime income stream is right for you. The information in this email is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger Life), general only and has been prepared without taking into account any person’s objectives, financial situation or needs. Because of that, each person should, before acting on any such information, consider its appropriateness, having regard to their objectives, financial situation and needs. Each person should obtain and consider the Product Disclosure Statement (PDS) before making a decision about whether to acquire or continue to hold the relevant product. A copy of the PDS can be obtained from your financial adviser, our Investor Services team on 13 35 66, or at www.challenger.com.au All references to guaranteed payments from Challenger refer to the payments Challenger Life promises to pay under the relevant policy documents. Neither the Challenger group of companies nor any company within the Challenger group guarantees the performance of Challenger Life’s obligations or assumes any obligations in respect of products issued, or guarantees given, by Challenger Life.