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 receive special means test treatment under the Assets Test, but that comes with trade-offs – which not all clients need to make…

Favourable assessment under the social security assets test applies to lifetime income streams that limit withdrawals in line with the Capital Access Schedule (CAS). Whilst the CAS (see Figure. 1) applies a limit on the maximum amount that can be accessed, some lifetime income streams may offer an even lower withdrawal amount. For example, some lifetime income streams may remove access to withdrawals of any kind or lump sums on death, after a pre-determined waiting period.

Choosing a CAS aligned lifetime income stream is optional

As detailed below in Table 1, clients utilising CAS-aligned lifetime income streams receive a 40% asset test reduction on the purchase amount; however, depending on client circumstances, they may be giving up a portion of their capital in return for minimal or even no improvement in their social security entitlements.

These include clients who are:

already full pensioners under the assets test,
receiving an income tested age pension entitlement; or
self-funded retirees who are not seeking to access the age pension.

For these clients, a non-CAS aligned lifetime income stream such as AGILE may be appropriate. It provides flexibility and liquidity if a client needs to access the 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 their lifetime income stream align with the CAS, i.e. defer the choice of whether to select AGILE Age Pension+ option. This decision can be deferred until they:

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

This means clients can invest earlier for certainty around guaranteed income for life and make the election (or not) to have their AGILE investment align with the CAS via the Age Pension+ Option at a time closer to their actual retirement, when there is more clarity around their assets position for social security means testing purposes.

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.