When choosing an investment which will provide a regular income stream it is important to select the one most suitable. There may be other considerations in addition to those comparisons made below.
The chart below is intended as a guide only and covers the most commonly asked questions.
Account Based Income Streams (ABIS)
Non Account Based Income Streams
|Account Based/Allocated Pensions (flexible)||Transition to Retirement Income Streams||Defined Benefit Super Pensions||Lifetime Pensions & Annuities||Life Expectancy Pensions & Annuities|
|How secure is my capital?||Depends on investment options chosen||Depends on investment options chosen||High (unless the trust deed is altered)||High||High|
|Can I withdraw lump sums at any time?||Yes||No||No, unless fund rules allow||No||No|
|Can I choose the level of income I receive?||Yes – as long as age based minimum taken||Yes – between age based minimum & maximum 10%||No||No||No|
|Is my income guaranteed?||Only until money in the account runs out||Only until money in the account runs out||Yes (unless the trust deed is altered by paying institution)||Yes by paying institution||Yes by paying institution|
|Must I use superannuation money?||Yes||Yes||Yes||Can be either super or non-superannuation||Can be either super or non-superannuation|
|When must payments commence?||By 30 June in the financial year of purchase. May be deferred if purchased after 1 June||By 30 June in the financial year of purchase. May be deferred if purchased after 1 June||Depends on fund rules||By at least the first anniversary of purchase||By at least the first anniversary of purchase|
|Can there be tax concessions?||Yes||Yes||Yes||Yes||Yes|
|Is it counted as an asset for GIS?||Yes||Yes||Depends on fund compliance with exemption characteristics||Depends when purchased.||Depends when purchased.|
|Is it subject to the income test for GIS?||Yes. See notes below||Yes. Special rules can apply||Yes. Special rules can apply.||Yes. Special rules can apply||Yes. Special rules can apply|
|How are death benefits treated?||Can continue to spouse, or to a dependant for a limited time, or as a lump sum. Non-dependants can only receive as a lump sum||Can continue to spouse, or to a dependant for a limited time, or as a lump sum. Non-dependants can only receive as a lump sum||Portion continues to spouse or to a dependant for a limited time.||Superannuation – fund regulations apply. Non-super – income to nominated reversionary. Lump sum available in guarantee period||Superannuation – fund regulations apply. Non-super – income to a nominated reversionary or estate. Lump sum payable|
Income payments may be assessable for income tax.
A deductible amount, representing the return of capital, may be available reducing the assessable income. For people between their preservation age and 60 years, where superannuation is used to purchase the income stream, the deductible amount is determined by the proportion of the tax exempt component producing the income stream. A tax offset of 15% may also be available based on taxable income.
For people aged over 60 years income from a funded (taxed) superannuation source is exempt from tax.
The treatment of Income Stream products under the Income and Assets Tests is dependent on the characteristics specified in the contract.
All income stream products purchased since 20 September 2007 are fully assessable under the Assets Test. Certain income streams purchased prior to 20 September 2007 may have concessional treatment under the Assets Test.
The treatment of income streams for income test purposes can vary.
- The amount that can be held in tax free retirement income streams is subject to the member’s available Transfer Balance Cap. From 1 July 2017 an individual’s transfer balance cap is $1.6M
- Fees and charges vary between products. It should be determined whether the product offers good value
- Check carefully if there are any penalties or potential capital losses associated with terminating the investment or making withdrawals (commutations)
- All investments have risk. If there is the ability to choose the underlying assets of the investment make sure all associated risks are considered
- It may be possible to structure the income stream to access income without volatility and manage risk