Allocated pensions guide

• Introduction

  You've accumulated a healthy balance in your super account and you're looking forward to those retirement years you've been dreaming about. But what happens now? How do you make sure you're going to get the most out of your super?

  Getting started

  If you'd like more information, talk to your financial adviser. If you don't have an adviser, we can help you find one.

• What is an allocated pension?

  An allocated pension is an account that will provide you with a regular income stream from your super savings. The income stream will generally be available to you once you've reached age 65 and retired from the workforce. In some circumstances, you may be able to access your super while you are still working as a transition to retirement or pre-retirement pension.

  While there is a requirement that you receive a minimum pension payment, no maximum pension payment limit applies, except for pre-retirement and term allocated pensions. You can hold a range of assets in your allocated pension account, including shares, managed investments and cash, depending on your investment strategy.

  One of the best things about an allocated pension is that it is generally much more tax effective than super.

• What are the tax benefits?

  • You don't pay any tax on any returns earned by the investments in your account. These tax-free earnings remain in your account to increase the value of your investment, so you can potentially receive more income or increase the life of your super funds.
  • If you're under 60, but have reached your preservation age, rolling your super straight into a pre-retirement allocated pension means you defer the payment of lump sum tax.
  • If you are under 60, payments from your allocated pension account are assessed at ordinary marginal tax rates, but if you're between 55 and 59 or permanently incapacitated, you're also entitled to a tax rebate of 15% on the taxable portion of the pension received. Once you turn 60, pension payments & lump sum payments from your pension account are entirely tax free.
  • Contributions that you or your spouse made into super (on your behalf and for which no tax deduction was claimed) are returned to you tax-free over the life of your pension.
  • Generally, Centrelink treats only part of the income received from an allocated pension as income, so you may still be eligible for social security payments depending on your individual circumstances.
  • Any unrealised capital gains in your super account may be able to be rolled into your allocated pension account. No tax is payable upon rolling over and best of all, the investments can later be sold free of capital gains tax!

  Doing it right

  Let's say George, aged 65, has just retired and has $350,000 in super. After sitting down with his financial adviser, he decides to roll his super into an allocated pension. Under the levels set by legislation, for the first year of the allocated pension, George must draw a minimum pension of $17,500.

  Let's assume George wants to receive $35,000 pa as income and draws this amount from his pension. As George is older than 60 his pension is not taxable and he receives the full $35,000 as an annual pension payment tax free.

  Getting it wrong

  Jenny is retiring at 59 and has the same super balance as George. However, instead of rolling her super into an allocated pension, she withdraws the whole $350,000 from her super account as a lump sum. Assuming that $250,000 of this amount is a taxable component and that Jenny is entitled to the full tax free threshold of $140,000, Jenny will pay tax of $18,150 on this withdrawal ($110,000 x 16.5%, including Medicare levy). Any investments acquired by her with the amount withdrawn would then be subject to the ordinary tax rules, rather than being entitled to the tax concessions applicable to pension investments.

• Want to be more flexible?

  Through an allocated pension, you can:

  • choose the investments in your account according to your particular risk profile and requirements, rather than having no say over where your money is invested (as is the case with some other types of pensions)
  • vary the amount of income you receive and the frequency and timing of each payment, depending on your changing needs. This is especially useful if you're balancing your allocated pension income against other income sources
  • draw a lump sum at any time (if you've retired), say for a holiday or emergency. You'll have access to your money if and when you ever need it.

• What about estate planning?

  An allocated pension can run for your own lifetime (assuming the money doesn't run out!) or transfer to a beneficiary (generally your spouse) after your death. Allocated pensions are a good way to secure an income stream for your spouse, giving you peace of mind knowing that you can provide for your family in the future.

• Interested?

  To get started, you first need to speak to your financial adviser. Allocated pensions are just one of the options available and your adviser will help you make the best decision for your personal circumstances.

• Important information

  The information in this guide is based on our interpretation of the laws applying as at 1 July 2007. It is not the intention of Asgard that this publication be used as the primary source of readers' information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and Asgard will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded). This publication has been prepared for general information and not having regard to any particular person's investment objectives, financial situation or needs. Accordingly, no recommendations (express or implied) or other information should be acted upon without obtaining specific advice from a financial adviser or similar professional.

  In deciding whether to open, or to continue to hold, an Asgard Account, you should consider the relevant Product Disclosure Statement for that Account issued by Asgard. Copies can be obtained from Asgard or a financial adviser. In the event of any person subscribing for the securities, such subscription may result in Asgard and an authorised representative receiving a commission, fee or other benefit or advantage, precise details of which can be obtained from a current Asgard Product Disclosure Statement or Financial Services Guide.