The Australian government offers various tax incentives if you convert your superannuation into a retirement income stream. Below is a brief summary of the various types of income streams available.

Please note that some of the rules can be quite complex and we recommend that you discuss your financial options with a financial planner.

Allocated Annuity

An allocated annuity is like a personal pension that lets you invest any of your accessible superannuation or rollover money and provides you with a regular and flexible income.

Some of the benefits of an allocated annuity include:

• Provides a way to defer or totally eliminate lump sum tax on your superannuation or rollover money

• You pay no tax on the investment earnings of your annuity

• Part of each income payment may be tax free, and the rest could attract a 15% rebate

• It may help you to receive social security benefits

• You can choose from a range of investment options with varying degrees of exposure, including shares, property, cash and fixed interest. This gives you the opportunity to invest in options with low to high growth potential

• It is easy to understand

• Your income is flexible and you can withdraw additional lump amounts if needed

• You can choose the amount and frequency of your income payments (within government prescribed limits)

• You can change your income level to suit your changing needs or to keep pace with inflation (within government prescribed limits)

• Upon your death, the balance of your account can be used to pay an income to your spouse until the money runs out or it can be paid as a lump sum to the beneficiaries of your estate

With an allocated annuity, make sure you take the following into consideration:

• The value of your account can rise or fall and cannot be guaranteed

• You will need to regularly review your allocated annuity and income needs as you may outlive your money

• PAYE tax may be payable on the taxable part of each income payment

• Lump sum ETP tax may be payable on any lump sum withdrawals you make

Guaranteed Super Pension

A guaranteed superannuation pension provides a regular income stream, just like a salary, for either a fixed period of time (fixed term pension) or for the rest of your life (lifetime pension).

The income you receive from a superannuation pension will depend on:

• How much money you invest

• How long you want it to run and how much income you would like to be paid each year (subject to parameters)

• The interest rates at the time you invest. However, you are not affected by any future fluctuations in interest rates once you have invested

• Any specific options you include like protection against inflation or payment for a minimum period

• The age and sex of anyone who can receive income, where you have selected a lifetime pension

Some of the benefits of a Guaranteed Super Pension include:

• Peace of mind with income payments guaranteed for your life or for a fixed period of time

• Easy to understand

• You can choose how often you want to be paid the income each year

• The ability to have payments increased in line with inflation

• Gives you the ability to let your spouse receive income from the pension after your death

• Tax which would have applied to your ETP is generally eliminated when you invest it in the pension

• Part of each income payment may be tax free and eligible for a tax rebate of up to 15%

• It may help you receive social security benefits

You will also need to take the following into consideration with a Guaranteed Super Pension:

• You may not be able to make lump sum withdrawals and access to it is only possible under special circumstances

• You become a member of a superannuation fund

• Once the terms of your income payments and frequency of payments have been agreed upon, they are all fixed at the time you invest and cannot be altered

• There may be restriction to paying any outstanding benefits to your beneficiaries in certain circumstances

Lifetime Annuity

A lifetime annuity lets you invest money and receive a guaranteed and regular income for the rest of your life. You can invest in a lifetime annuity using any accessible superannuation/rollover savings or other savings.

Some of the benefits of a lifetime annuity include:

• Peace of mind with income payments guaranteed for your life

• Easy to understand

• You can choose how often you want to be paid the income each year

• The ability to have payments increased in line with inflation

• The ability to provide for other people to receive income from the annuity

• It can provide a way to defer or totally eliminate lump sum tax on the accessible superannuation or rollover savings

• Part of each income payment may be tax free and eligible for a tax rebate of up to 15%

• It may help you receive social security benefits

When setting up a lifetime annuity, please also take the following into consideration:

• Your income payments and frequency of payments are all fixed at the start and cannot be altered

• Access to a lump sum payment is only possible under special circumstances

• It may not be the best way to manage your cash flow needs

• PAYE tax is payable on the taxable part of each income payment such as an allocated pension

For more information and to clearly understand the various retirement income stream options available, speak with one of our experienced financial planners on 1300 55 19 45 now and they will help you take the drama out of your retirement plan.