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  • Innovative retirement income stream for individuals

    Previously, there were rules restricting the development of new retirement income products.

    Effective 1 July 2017, the government removed these barriers by extending the tax exemption on earnings in the retirement phase to innovative products, such as deferred lifetime annuities and group self-annuitisation products.

    The intent of the change is to provide greater choice and flexibility for retirees to manage the risk of outliving their retirement savings.

    What is an innovative retirement income stream product?

    The term innovative retirement income stream covers a range of lifetime products that did not meet the annuity and pension standards prior to 1 July 2017. There are several key elements that must be met for a retirement product to be considered an innovative income stream. These are:

    • similar to an ordinary account-based income stream, the fund is not able to start paying benefits until you have met a nil cashing restriction condition of release. However, the difference with these products is that the start date for benefit payments often is deferred until a later event, usually age-related. This is agreed upon when you sign up for the product
    • once benefit payments start, they must be made at least annually and be payable for your remaining lifetime (and any primary or reversionary beneficiaries), and there can be no unreasonable deferral of payments from the income stream
    • there are restrictions on the amount that you can commute and take as a lump sum payment or rollover within the super system. These restrictions apply after the income stream enters the retirement phase, and are based on a declining capital access schedule.

    Taxation impacts for a member who holds an innovative retirement income stream product

    Similar to other superannuation income streams, a payment made to you from an innovative income stream is a superannuation benefit. Tax on your super benefits is generally taxed at your marginal tax rate, however, this varies depending on several factors, including:

    • your preservation age and the age you will be when you get the payment
    • whether the money in your super account is taxable or tax-free.

    See also:

    Difference between an innovative income stream and an account-based income stream

    There are several differences between an account-based income stream and an innovative income stream. For innovative income streams:

    • you still need to have either retired, turned 65, or suffered a terminal medical condition, but for innovative income streams, the start date of your benefits may be deferred until a later date. This date will be agreed upon when you sign up for the product
    • you will continue to receive benefits even if the original capital you invested is exhausted
    • the amount you receive as a benefit payment is determined by the product and your contract with the fund, you are not able to vary the amount
    • the amount you are able to rollover or take as a lump sum is determined by a capital access schedule.
    Last modified: 12 Apr 2018QC 51337