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Annuities

Turn your super or other savings into a guaranteed income when you retire

Page reading time: 3 minutes

An annuity, also known as a lifetime or fixed-term pension, gives you a guaranteed income for a number of years. Or the rest of your life.

An annuity is less flexible than an account-based pension, but you can be sure about your future income.

How an annuity works

You can use your super or savings to buy an annuity from a super fund or life insurance company.

When you buy an annuity, you choose whether you want the payments to last for:

Preservation age

If you are using super money to buy an annuity, you must have reached preservation age (between 55 and 60).

You must also meet a condition of release, such as permanently retiring.

Joint or individual annuity

You can use savings to buy an annuity in joint names. This allows income splitting for tax purposes. If you or your partner dies, the survivor has ownership and access to the funds.

If you use a super lump sum to buy an annuity, it can only be in the name of the person who 'owns' the super.

Income from an annuity

You decide the payment amount you receive when you buy the annuity. Your annuity income can increase each year by a fixed percentage, or indexed with inflation.

You can choose to be paid monthly, quarterly, half-yearly or yearly.

An annuity bought with super money must pay you a certain percentage of the balance, based on your age. The Australian Taxation Office website has more information about minimum annual payments.

Your annuity if you die

When you buy an annuity you can either nominate a reversionary beneficiary or choose a guaranteed period option.

How an annuity affects the Age Pension

An annuity forms part of the income and assets tests to determine your eligibility for the Age Pension.

A Department of Human Services Financial Information Service (FIS) officer can help you work out how an annuity will affect your Age Pension entitlement.

The difference between an annuity and an account-based pension

Share market performance doesn't affect annuity returns. This makes an annuity one of the more stable retiree investment options.

With an account-based pension, your money is invested in a range of investments, including shares, property and bonds. This gives potential for better growth and investment performance. Share market performance does affect returns, making an account-based pension riskier than an annuity.

Pros and cons of an annuity

Consider the pros and cons to decide if an annuity is right for you. Get financial advice from your super fund or a licensed financial adviser if you need more information.

Pros

Cons

Using a mix of retirement income options

You don't have to take an all or nothing approach to your retirement income. You may benefit from a mix of options, such as an annuity, account-based pension or lump sum.

Consider your personal needs and circumstances before making a decision. Your super fund, a licensed financial adviser or a Financial Information Service (FIS) officer can help.