Annuities - Roberts Financial Foundation

An annuity is an investment that pays you a guaranteed income for either a set period of time or for life.

Annuities can be purchased from money rolled over from your superannuation fund or non-superannuation money:

Super money – payments received have same tax treatment as super pensions
Nonsuper money – a tax-free amount for each payment is calculated (representing a return on capital) Amount above the return on capital is classified as taxable income

Payments are set over a number of years (monthly, quarterly, half-yearly, annually) or for the remainder of your life (depending on whether you selected fixed-term or lifetime).

Payments received will depend on the amount you invested, actuarial calculations (economic and demographic assumptions to estimate future liabilities)

Payments increase each year (in line with inflation or a fixed percentage) depending on the amount invested.

Payments are secure (additional layer of protection), therefore regardless of what is happening in the financial markets (market crash/interest rate movements), you are set with reliable static income (rest of our life or fixed period you arranged)

Rate of tax on payments will be determined by whether you are under preservation age (or of preservation age), taxable and non-taxable components of income stream received and if the taxable component has tax or untaxed elements.

Under preservation age or preservation age and under 60 – Super Money: Taxed at your marginal tax rate (MTR) but you then receive a tax offset of 15%
Age 60 and over – Super Money – Tax-free
Non-super money – Only income component is taxable

Fixed Term Annuities

You can nominate the term and frequency
Certainty income will not run out during the term (guaranteed over this period)
Choose whether payments will remain level or be indexed each year (increases in prices due to inflation)
Option to have a portion of capital invested returned as a lump sum at the end of the term and amount sum
Protected from adverse market movements. (lock in the applicable interest rate)
Income can be paid directly to your nominated beneficiary or your estate if you pass away before the fixed term-end

Lifetime Annuities

You may be able to elect payments to continue to be paid to your spouse upon your death
Lifetime certainty of income (payments guaranteed)
You may be able to elect to apply a ‘guaranteed period’. (depending on the annuity may mean the income will continue paid for a guaranteed minimum period of time, even after you pass away during the guaranteed period or a lump sum may be payable)
Choose whether payments will remain level or be indexed each year (increases in prices due to inflation)
Protected from adverse market movements. (lock in the applicable interest rate)
Part of the income you receive may be tax-free

Important Information to Consider

Many annuities do not allow for lump sum withdrawals (loss of access to capital)
If you withdraw/cancel annuity, it’s unlikely you will receive the full amount inside the annuity
Depending on annuity/provider any leftover funds when you pass many not end up payable to your dependents (default for most annuities unless you negotiate the minimum payment term after you pass)

Transfer Balance Cap – as of 1 July 2017, a cap was put on the amount of money you can transfer into an account-based pension or annuity. This is has been set at $1.6 million. If you breach the cap, you will be subject to tax on the notional amount of earning on the excess. The cap will be indexed in $100,000 increments in line with the Consumer Price Index (CPI)

Age Pension Implications – Entitlement is determined by an income and assets test, the balance of your annuity will be assessed under assets test and part of your income you get each financial year will be assessed under the income test. Centrelink will apply the test that results in the lowest amount of Age Pension.

Speak to a professional or contact our office if you would like some assistance in choosing the right annuity for you and/or your family.