Allocated Pensions

Allocated Pensions

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.