Allocated Pension

By FutureNestEgg | September 15, 2009

Once you reach your preservation age, you are eligible to access your super money. You can now either put your entire super lump sum into an investment vehicle of our choice (like term deposits, managed funds, properties etc) or you can invest the lump sum into an allocated pension.

With allocated pensions, you will receive a regular payment until all the money in your allocated pension account is drawn out. You can set the frequency of this payment – monthly, quarterly, half-yearly or yearly. You can also set the amount of your withdrawals – can be changed at any time based on your requirements. There is however a minimum and a maximum set by Government and your withdrawals has to meet these requirements. You can also draw out a lump sum – may be for a holiday or for some other emergency funding.

Tax is a big advantage of allocated pensions – all your investment earnings are tax free – if you were to put your super lump sum into a term deposit, you will have to pay tax on the earnings. With allocated pensions, no tax on investment earnings – However you do have to pay tax on your withdrawals – Only earnings is tax free – fair enough.

Allocated Pensions are quite good with the range of investment options they offer – you don’t have to stick to cash earnings – you can invest in shares, international shares, property funds etc etc. So there are good investments options with these pensions.

One point – probably obvious but still worth pointing out – if you keep withdrawing huge sums of money then you can run out of funds.

Click here to read more Superannuation Misunderstood Terms

If you have anything to share about allocated pensions, please leave a comment below…

Best,