The most important thing with any retirement income stream is that it provides you with the ability to do what you enjoy. Whether that is caravanning around this great continent or travelling to more exotic locations, Mentor will help structure your affairs so you have the options to do what you enjoy doing.
There are three main types of pension income streams -
Account based pensions (Previously known as Allocated Pensions),
Transition to retirement pensions,
Non-account based income streams (Previously known as guaranteed annuities).
Please contact Mentor and speak with one of our Financial Planners, so we can provide you with tailored financial planning advice which is appropriate for your individual needs.
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Account Based Pensions
The most popular Pension income stream is called an Account Based Pension which was previously called an Allocated Pension. It is a retirement income stream which provides payments until the death of the recipient, or the account balance runs out. Payments may comprise of both the original capital invested and the net interest earned on that capital. Account based pensions are not taxed on either the growth or the income generated by the investment if you are retired and aged over 60.
Account based pensions require at least one payment to be made each year. There is no maximum payment that must be made, in essence a recipient could withdraw the total investment as long as they have satisfied a condition of release. There is a minimum payment that must be made based as a percentage of the funds invested and your age.
Minimum percentage of the total balance that must be withdrawn:
| Age | Percent |
|---|---|
| 55 - 64 | 4% |
| 65 - 74 | 5% |
| 75 - 79 | 6% |
| 80 - 84 | 7% |
| 85 - 89 | 9% |
| 90 - 94 | 11% |
| 95 + | 14% |
On the death of the recipient, the pension may only be transferred to a dependant or cashed out as a lump sum to the pensioner's estate (Tax implications may apply).
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Transition to Retirement Pensions
The team at Mentor believes that everyone over the age of 55 needs to assess whether they will benefit from a Transition to Retirement Pension; it is simply too good to overlook.
Transition to Retirement Pensions are similar to an account based pension, however the recipient is still allowed to work. The product may suit a number of strategies -
- Reduce income tax via salary sacrifice whilst replacing the lost income via access to superannuation benefits,
- Reduce hours worked, and compensate for the lost income through superannuation benefits,
- Transfer the superannuation balance, which is taxed at 15%, to a product that is not taxed at all
For transition to retirement pensions (where the individuals have not retired), the minimum payments that must be withdrawn are illustrated in the table under account based pensions, however there is a maximum that can be withdrawn of 10% of what the superannuation balance is at 1 July each year.
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Non-account based Pensions
If you are concerned about the performance of investment markets, then consider putting some of your accumulated super into a non-account-based income stream, where it will be guaranteed either for life, your life expectancy or for a fixed term. The investment risk lies with the income stream provider rather than you.
The negatives of non-account based pensions include limitations on how much you may withdraw and also lack of control over the investment.