An allocated pension is a rollover investment vehicle designed to maximise a retiree’s superannuation benefit while generating an ongoing income stream. By means of various investment options, this finite amount of saved money can be persuaded to last longer than otherwise would be possible.

Various banks and other financial institutions offer allocated pensions. There is generally a minimum investment, and it’s important to note that additional deposits are usually not permitted. The rate of return for various allocated pensions will be determined by the level of risk acceptable to the investor and, of course, market conditions; negative investment results are also a possibility to consider.

When a super is rolled over into an allocated pension, the lump sum tax is generally deferred. Once the funds are within the allocated pension, investment earnings are tax free, and when the beneficiary is over age sixty, the income withdrawn is tax free, as well.

The allocated pension is assets tested by Centrelink and a portion of the income is deemed. Specific information should be sought from a Centrelink representative.

The Federal Government mandates minimum percentages retirees must receive from an allocated pension on a per annum basis. This percentage varies by age from 4% of the account balance for those under age 65, to 14% for those 95 and older, and these funds are transferred directly into one’s bank account on a regular, predetermined basis until the allocated pension has been emptied.

Allocated pensions can be arranged so that they continue to pay ongoing income to a dependant spouse after the original account holder’s death, or any amounts remaining in the account can be awarded to a beneficiary as a lump sum payment or simply left to the estate. Lump sum amounts can also be withdrawn, which do not count as part of the minimum percentage mentioned above; however, lump sum withdrawals, known as commutations, may be subject to the lump sum tax.

It is important to note that an allocated pension is not a magical money machine, but is limited in duration by the amount of funds invested. A small initial investment, subjected to the regular withdrawals mandated by the Federal Government, would not be capable of funding a person’s entire retirement no matter what rate of return the investment achieved, much less leave anything to support a surviving spouse following one’s death.

However, if combined with the funds from a reverse mortgage, the small super of many cash-poor retirees could be convinced to last much longer. A percentage of the equity in one’s home, accessed via a reverse mortgage, could be combined with one’s super and rolled over into an allocated pension, with another percentage of the equity preserved from the reverse mortgage to fund an accommodation bond, should aged care become necessary.

Of course, one should consult with an independent financial advisor prior to committing funds to any investment product. If such a professional is not currently among one’s resources, a suitable candidate can be located through the Financial Planning Association of Australia (FPA) via their website, www.fpa.asn.au, or by ringing 1800 626 393. Please note that FPA members are bound by a strict code of ethics and must maintain their high level of professional expertise through ongoing development courses.