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An allocated pension is an investment that lets you rollover your super money into an account held in your name in a super fund. The returns you make on your investments are added to your account, which pays you regular income payments.
Allocated pensions are a flexible and tax-effective way to provide income in your retirement. They are flexible because you can usually:
- vary your pension payments (within government minimums and maximums)
- choose monthly, quarterly, six-monthly or annual payments
- withdraw lump sums (although this reduces the balance in your account)
- specify how much and to whom benefits are to be paid upon your death
- choose from a range of investment options.
They are tax-effective because:
- investment earnings added to your allocated pension account are tax-free
- pension payments are taxable, but may have a tax-free component
- lump sum withdrawals are subject to tax at lump sum tax rates
- you may be entitled to a tax rebate.
Allocated pensions do have some disadvantages you should be mindful of:
- there are restrictions on the amount of pension you can take each year
- there is no guarantee your pension payments will continue throughout your lifetime
- the investment option you choose may not perform to your expectations
- the government may change the rules about allocated pensions
- you can’t split your pension between husband and wife to reduce tax
- an allocated pension is not exempt from the assets test for social security purposes.
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Find out what the star ratings mean.
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