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SuperRatings' Pension of the Year 4 years in a row4
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There are many reasons why members are purchasing QSuper’s new award-winning1 Lifetime Pension, which offers an income for life.
The key driver behind the creation of the product is that Lifetime Pension takes away the worry of how long your super will last and provides you with the confidence of knowing your retirement money will last.
Similar to other retirement products such as an annuity, when members purchase a Lifetime Pension their purchase amount is combined with the money of other Lifetime Pension members. They then receive payments from this pool of money for the rest of their life, even after they’ve received payments totalling their initial purchase price.
Unlike an annuity, though, the regular payment isn’t a fixed amount, but will vary from year to year. We invest the pool of money in our Balanced option for Retirement Income accounts, and each year those members with a Lifetime Pension receive an annual net adjustment based on a 5% benchmark. The annual adjustment is intended to help keep up with the rising cost of living.
The Lifetime Pension also offers a potential increase to total income with access to possible Centrelink benefits, as not all of the purchase price is counted towards Centrelink's income and asset tests.
QSuper's Head of Product and Services Ben Hillier said the reasons for some members purchasing the Lifetime Pension varied. Sometimes, each member of a couple had different reasons for joining, he said.
"The top reasons people have bought in are the potential for higher income levels, the confidence of an income that never runs out," Mr Hillier said.
"Spouse protection is also one of the top reasons members are giving."
"Looking after your spouse is a really strong attraction. It offers powerful peace of mind."
Lifetime Pension offers an income for the rest of a person’s life, and the life of their spouse (if they’ve chosen the spouse protection option), no matter how long they live.
Under the spouse protection feature of Lifetime Pension, a person can choose to have payments continue to be paid to their spouse after they pass away, giving them the security of knowing they'll be financially supported in their partner’s absence.
The Lifetime Pension also offers a money-back guarantee as it is designed so a person can receive their purchase price back in fortnightly payments, or the remainder goes to their beneficiaries once they pass away.2
See how including the Lifetime Pension has made a difference for Sue, Walter, Gita and Vijay.
Super balance: $450,000
Sue is a widow who is looking for greater certainty that her income won’t run out in retirement. Sue considers herself to be a healthy woman and believes she will outlive her life expectancy.
One of Sue’s greatest fears is to be a financial burden on her two adult children, who now have families of their own. For this reason, she has been reticent to withdraw more than the minimum from her Retirement Income account, which provides her with an annual income of $11,250.3
But Sue may consider purchasing a Lifetime Pension for $200,000 and keep $250,000 in a Retirement Income account to give her the best of both worlds.
Sue would receive an income of $15,058 in year one from her Lifetime Pension in addition to $6,250 from her Retirement Income account, totalling $21,308 together for a 89% increase.4 Depending on her other assets and incomes, she may also qualify for an increased Age Pension as well.
She can be confident she will receive an income for as long as she lives and that it won’t cease once she reaches her life expectancy, noting that this income may increase or decrease each year.
Super balance: $550,000
Walter owns his home and plans to retire next year.
As well as super, Walter has $75,000 in other assets, such as his motor vehicle and household contents. As he has total assets of $625,000, he would ordinarily not receive any Age Pension entitlement.
However, Walter has decided to purchase a Lifetime Pension for $250,000 and open a Retirement Income account with the remaining $300,000.
As the Lifetime Pension purchase amount is assessed (for Australian Government pension assets test purposes)5 at 60% of the purchase price, this will result in a lower assessable asset value.
By opening a Lifetime Pension, Walter will not only receive fortnightly payments for the rest of his life, he is now also eligible for the Age Pension and a Commonwealth Pensioner Concession Card. This is due to the income and assets means test rules that apply to the Lifetime Pension product.
As a result of the reduction in assessable assets, Walter’s Age Pension entitlement has increased from nil to $4,724 a year,6 increasing his total income to $37,232 a year, which represents an increase of $9,732 for the first year.
By combining the Lifetime Pension with a Retirement Income account, Walter has the peace of mind that he will receive payments for the rest of his life, while also having the flexibility to withdraw extra money from his Retirement Income account when needed.
Gita and Vijay’s story
Age: Both 67
Super balance: $800,000 combined, with $60,000 of other assets besides their home.
Gita and Vijay are both retired healthcare workers who currently draw the minimum from their Income accounts, providing combined income of $40,000. They qualify for a small part pension but may lose this benefit in years when the market performs particularly well.
If they considered purchasing a Lifetime Pension with a proportion of their balance, they would be able to confidently target a significantly higher level of income and could qualify for a greater Age Pension entitlement.
By purchasing a Lifetime Pension using half of their balance, Gita and Vijay are able to increase their income to almost $75,000 from their overall retirement solution, using the flexibility of their account-based pension to ensure their income remains consistent, confident that their Lifetime Pension will continue to provide income for life even if they live long enough for their Income account to be depleted.
Discover how Lifetime Pension may make a difference to your retirement.
Find out more
1. For further information about the methodology used by Chant West, see www.chantwest.com.au. This award is solely statement of opinion and does not represent a recommendation to purchase, hold, or sell any securities, or make any other investment decisions. Ratings and awards are subject to change and are only one factor that you should consider when deciding how to invest your super. Past performance may not be a reliable indicator of future performance.
2. Money-back protection may be subject to legislative maximums and adjustments for negative returns. If spouse option is selected, payments will continue to the spouse. Further details are available in the QSuper Product Disclosure Statement for Income Account and Lifetime Pension (pdf).
3. Using temporary 50% reduction of minimum drawdown for the 2020-21 financial year.
4. Assumes Sue has opened the Lifetime Pension on 1 July, her 70th Birthday.
5. Under the means test rules dated 1 July 2019, 60% of the purchase price is assessed until you reach the life expectancy for a 65-year-old male (currently 84 years old), or a minimum of five years, and 30% thereafter.
6. Age Pension income estimate based on income and assets tests as at 31 May 2021.
The opinions expressed and those providing comments are theirs alone, and do not necessarily reflect the opinions of the QSuper Board. No responsibility is taken for the accuracy of any of the information supplied and you should seek advice for your personal circumstances.
This information and QSuper products are provided and issued by the QSuper Board (ABN 32 125 059 006, AFSL 489650) as trustee for QSuper (ABN 60 905 115 063). This is general information only, you should therefore consider the appropriateness of this information in light of your own objectives, financial situation, or needs before you make any decision. Consider whether the product is right for you by reading the product disclosure statement (PDS) available from qsuper.qld.gov.au or by calling us on 1300 360 750 to request a copy.
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