Annuity & You – The Who, The What & The When Explained

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An annuity provides guaranteed income for several years or the rest of your life. It is also known as a lifetime or fixed-term pension.

You can buy an annuity from a super fund or life insurance company. You can choose whether you want the payments to last for a fixed number of years, your life expectancy, or the rest of your life.

To buy an annuity through your super fund, you must be in the ‘preservation age’, which is between 55 and 60. Additionally. You are required to meet a condition of release, such as permanently retiring.

You are also able to buy an annuity in joint names using savings. Through this method, you can split income for tax purposes. If either you or your partner dies, the survivor has ownership and access to the funds. On the other hand, buying an annuity using a super lump sum can only be in the owner’s name.

When you buy the annuity, you decide your payment amount. This can increase each year by a fixed percentage or indexed with inflation. Further, you can also choose if you are paid monthly, quarterly, half-yearly or yearly. There are some conditions the ATO has about minimum annual payments if your annuity is bought with super money e.g. must pay a certain percentage of the balance based on your age.

You decide what happens with your annuity if you pass away. You can either nominate a reversionary beneficiary or choose a guaranteed period option. A reversionary beneficiary will receive your income payments for the rest of their life, usually at a reduced level. The guaranteed period option will allow your beneficiary to receive their payments as a lump sum or an income stream.

An annuity will impact your eligibility for the Age Pension as it is accounted for in the income and assets tests conducted. You should discuss exactly how the annuity will impact your Age Pension entitlement with a Financial Information Service (FIS) officer.

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