As we enter 2023, long term (including lifetime) annuity strategies are a lot more attractive than they were a year ago, assisted by rapid interest rate rises in 2022. Many retirees are now seeking advice on annuity strategies. We’re finding that whilst most Australians are familiar with the concept, they need advice on how an annuity may fit into their overall retirement strategy.
A lifetime annuity is a type of investment that will pay you regular income for life, regardless of how long you live, helping to give you peace of mind in retirement. A lifetime annuity can complement your other retirement investments and sources of income, such as account based pensions and the Age Pension. Certain annuities receive beneficial Centrelink treatment for both the assets and income tests, leading to higher Age Pension entitlements for some investors. You can use your super or personal savings to invest.
Lifetime annuity options can provide:
- Regular monthly payments for life (and your spouse’s life if you choose)
- Payments that start immediately, or on a future date you choose (if using super savings to invest)
- Payments that are fixed, that keep pace with inflation, or are linked to the RBA cash rate or investment markets
- A long period where you can access a lump sum if your circumstances change
- A long death benefit period where a lump sum is payable to your estate or nominated beneficiaries
- A potential boost to your Age Pension entitlements under the Age Pension rules
For income certainty, you can choose CPI indexed or fixed payments. Alternatively, you can choose to have payments linked to changes in the RBA cash rate or investment markets. Your regular payments (paid monthly) are determined at the commencement of the annuity. This provides you with monthly income for life and removes some of your longevity risk.
Annuity providers in Australia are regulated by Australian Prudential Regulation Authority (APRA) and must hold a minimum amount of capital, set by APRA, to help ensure that they can meet the payment promises made to investors. APRA is the authority that regulates the banking, insurance and superannuation industries. APRA requires that annuity providers hold enough capital to withstand a one in 200-year shock event. So even if an unfortunate event occurs, or there is a significant share market or property crash, your regular payments are still guaranteed to be paid for your lifetime. See Pros and Cons of Annuities on the Moneysmart site.
Lifetime annuities provide different payment solutions to suit your financial circumstances and needs, therefore it is worth seeking advice from a qualified Adviser. Contact us to arrange an initial consultation to discuss further.
(Please note: the fee for an initial consultation is $275 (inc GST) for a 1 hour meeting. This fee is rebated then against advice fees, if proceeding with specific advice).
