Choices and trade-offs between capital access and income in retirement income streams

Lifetime income streams that align with the social security Capital Access Schedule (CAS) receive special means test treatment under the social security assets test. The CAS limits the amount that can be commuted from certain lifetime income streams purchased since 1 July 2019.

Lifetime income streams that are aligned with the CAS receive a reduction in the assets test assessment of the purchase amount. The CAS works as follows to limit the maximum commutation amount that may be available for withdrawal or death benefits from a lifetime income stream:

This alignment with the reducing capital access table is the trade-off the client makes for obtaining the concessional assets test treatment afforded to CAS-aligned lifetime income streams.

The assets test concession for CAS-aligned lifetime income streams

As detailed below, CAS-aligned lifetime income streams receive a 40% asset test reduction on the purchase amount.

Sometimes CAS-aligned income streams are also known as Innovative Retirement Income Streams.

AGILE is a guaranteed lifetime income stream that allows for growth[1] prior to turning on income payments and automatically aligns with the capital access schedule if Age Pension+ option is selected. But not all lifetime income streams that are CAS-aligned will strictly follow this CAS reduction table – some will offer lower or no amounts that may be commuted on withdrawal or death.

Choosing an income stream that aligns with the CAS, such as AGILE with the Age Pension+ option, can be helpful for individuals that would be suited to a lifetime income stream, and who:

almost qualify for an Age pension, or
are or will be on a part Age pension but their rate of pension is being or will be impacted by the assets means test.

Purchasing a lifetime income stream that aligns with the CAS can help these clients to qualify for or increase their Age pension entitlement.

There is no requirement to trade-off liquidity in a lifetime income stream

It is not a requirement that lifetime income streams comply with the CAS. There is a significant proportion of retirees that will:

fully qualify for the Age Pension due to a lower amount of assessable assets
be impacted by the income means test (rather than assets test,) or
be self-funded and not looking to qualify for the Age Pension at all.

These clients do not need a reduction in the assets test and can invest in a guaranteed income for life that isn’t aligned with the CAS, such as AGILE. This provides much more flexibility and liquidity if a client needs to access underlying investment value for both withdrawals and death benefits.

With AGILE, when a client invests between ages 50-65, they may be able to defer making the election to have a CAS-aligned lifetime income stream (i.e. defer the choice of whether to select AGILE Age Pension+ option). This decision can be deferred until they either:

reach a condition of release, for example retirement or reaching age 65, or
turn on their income.

This means clients can invest earlier for certainty around guaranteed income for life, but make the CAS / Age Pension+ decision closer to actual retirement, when there is more clarity around their assets position for social security

Income test means testing of lifetime income streams

All lifetime income streams purchased since 1 July 2019, including AGILE, receive concessional treatment for the Age Pension Income test. Only 60 percent of income payments from the product are assessable for social security income test. This is true for AGILE whether or not Age Pension+ option is selected.

[1] Clients invest in AGILE with the opportunity to grow their investment for a minimum of three years, prior to being able to turn on income payments.

Disclaimer:

This material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559 (Allianz Retire+). Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited. This information is current as at October 2024 unless otherwise specified and is for general information purposes only. It is not comprehensive or intended to give financial product advice. Any advice provided in this material does not take into account your objectives, financial situation or needs. Before acting on anything contained in this material, you should speak to your financial adviser and consider the appropriateness of the information received, having regard to your objectives, financial situation and needs. Any tax and social security information in this material sets out our understanding of current legislation and practice as at the date of this document. It is only intended to be general in nature and does not constitute tax or social security advice. We recommend that you seek specific tax and social security financial advice on your personal circumstances before acting on this information or making an investment decision. No person should rely on the content of this material or act on the basis of anything stated in this material. Allianz Retire+ and its related entities, agents or employees do not accept any liability for any loss arising whether directly or indirectly from any use of this material. Past performance is not a reliable indicator of future performance. Use of the word ‘guarantee’ in this material refers to an assurance that certain conditions or contractual promises will be fulfilled by Allianz Retire+ from the available assets of its Statutory Fund No 2, in relation to the product terms. This includes ‘guaranteed’ income payments in the Lifetime Income Phase which will be paid from the available assets of Statutory Fund No 2, noting that Allianz Retire+ may terminate the product in certain limited circumstances as outlined in the Product Disclosure Statement referred below. Allianz Australia Life Insurance Limited is the issuer of Allianz Guaranteed Income for Life (AGILE). Prior to making an investment decision, investors should consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) which are available on our website (www.allianzretireplus.com.au). PIMCO provides investment management and other support services to Allianz Retire+ but is not responsible for the performance of any Allianz Retire+ product, or any other product or service promoted or supplied by Allianz. Use of the POWERED BY PIMCO trade mark, or any other use of the PIMCO name, is not a recommendation of any particular security, strategy or investment product.