Term Allocated Pensions are a market-linked pension providing an income stream with favourable Centrelink treatment. The pension provides a tax effective, regular income stream for the term of the pension.

How long does the income continue to be paid?

Term Allocated Pensions continue to provide an income until the assets are exhausted. You can nominate a term equal to your life expectancy or until age 100. Typically the longer the term you select, the lower the income payment you will receive. This enables your pension to last as long as possible whilst keeping your assets in a tax free environment.

An investment account is set up with the money from which you receive a fixed percentage each year, although you can vary the income by ± 10% of the actual pension amount. The percentage is based on the size of your investment fund at the end of each year, so your income actually varies based on market movements affecting the size of your fund.

For example, a $100,000 fund with 10% withdrawals each year pays $10,000 income in the first year, but in the 2nd year, the investment fund may be $108,000, so the income would be $10,800.

TAP Investment Choice

You can choose how your money is invested by the fund manager (known as ‘investment choice’). Fund managers have different investment strategies that carry different levels of risk and return and since you cannot transfer your TAP once it is in force you should consider whether the range of investments available is suitable to your needs. Are you confident that the manager you have chosen has enough of a range of funds for your investments in 10-20 years from now?

Term Allocated Pensions are one of the most tax efficient ways of receiving a retirement income yet charges and fund choice/performance can vary significantly. If you are considering purchasing a TAP, contact us with the details of your investment and see what rates we are able to offer you.

Term Allocated Pension – What are the benefits

Term allocated pensions are a relatively flexible way to provide an income for your retirement. They are less flexible than allocated pensions but more flexible than standard annuities.

With a term allocated pension you can:

• Vary your pension payments +/- 10% of the prescribed amount
• Vary between monthly, quarterly, six-monthly or annual payments
• Specify how much and to whom benefits are to be paid upon your death
• Choose from a range of investment options.

Term allocated pensions are also tax-effective:

• Investment earnings within your TAP account are tax-free
• Pension payments are taxable, but have a tax-free component (over age 60 are tax exempt)
• You may be entitled to a tax rebate

Term allocated pensions do have some disadvantages and it is important to discuss these with your planner in considering the suitability of these contracts:

• You are limited in varying income by +/- 10% of the prescribed amount
• You cannot commute lump sums
• There is no guarantee your pension payments will continue throughout your lifetime, taking maximum withdrawals and poor investment performance could reduce the value of your investment fund
• You can’t split your pension between husband and wife to reduce tax

Whether you’re unsure of which retirement strategy is the most appropriate for you, just looking to enhance the investment returns from your current retirement portfolio or confirmation of whether your current retirement strategy is up to date with recent changes in legislation, our affiliated planners will be able to assist.

Click here to enquire about how our affiliated planners can help in managing your finances

Setting up a term allocated/market linked pension or annuity

An important consideration when selecting a provider of a Term Allocated Pension is that the recent legislation does not allow a Term Allocated Pension to be commuted for the purposes of changing providers. Since you cannot transfer a term allocated pension once it has been set up, it is important to ensure that you seek advice as to the most suitable pension provider.

Term Allocated Pensions are tax efficient investments

Income from a term allocated/market linked pension is not taxable for those over 60 years of age.

Term allocated pensions and annuities are complying income streams for Centrelink purposes and provided that you meet the requirements, are 50% assets test exempt.

By structuring your investment portfolio correctly and utilising these investment products as part of a structured advised investment strategy, we are confident in being able to maximise your returns whilst reducing your potential tax liability.