What is Annuities?
An annuity is a simple, secure financial product which provides you with a series of regular payments in return for a lump-sum investment. The rate of return is fixed at the outset, and is not affected by share market or interest rate movements. You can choose to have your capital returned at the end of the agreed term or gradually during the term of the annuity as part of the regular payments.
- Deliver regular, dependable cash flows
- Offer flexible terms and payment options
- May offer indexation to help protect against inflation
- Provide tax-free income if you’re over 60 and buy them with superannuation money
- May help to increase Age Pension entitlements
Annuities are designed to be held to term. If you would like to cancel your annuity, in most cases you will receive a return of your investment but you may receive back less than you invested originally and less than you would have received had you held the annuity for its agreed term.
Features of Annuities
Security – Your interest and capital payments are guaranteed, regardless of share market movements or interest rate fluctuations.
Flexible terms and payments – With annuities you can choose your investment term. It can be as short as one year, as long as 50 years or even for your lifetime. You can also select how often you get paid – monthly, quarterly, half-yearly or annually.
Lifetime income – In the case of a lifetime annuity you can enjoy regular, dependable payments for the rest of your life.
Inflation protection – With some annuities, you can elect to index your payments so they keep pace with inflation or at a fixed indexation rate.
No product fees – There are no fees or charges payable to Challenger, but please note that if you have a financial adviser, you may have agreed to pay them a fee.
Tax effectiveness – When an annuity is bought with money rolled over within the superannuation system by a person aged 60 or over, the regular payments are tax free.
Seniors benefits – Annuities can help you access or increase your seniors benefits like the Age Pension and the Commonwealth Seniors Health Card.
Access to your money – If you would like to cancel your annuity, in most cases you will receive a return of your investment but you may receive back less than you invested originally and less than you would have received had you held the annuity for its agreed term. View the product disclosure statement for more information.
Type of Annuities
Fixed Term Annuities
When you retire, the bills keep coming in but a regular paycheck doesn’t. Fixed term annuities have a fixed start date and end date that is typically chosen by you. The minimum term is one year and the maximum term is 50 years. Your annuity payments are made for the duration of the term and stop at the end of the term. You can choose to have your capital returned at the end of the agreed term, or gradually during the term as part of the regular payments.
Each generation has lived longer than the previous generation. Lifetime annuities are designed to provide payments for the rest of your life. Payments start when the investment begins and last for your lifetime, even if you live much longer than you expect.
Lifetime annuities can help alleviate the worry that you will outlive your retirement savings. Challenger’s lifetime annuities have the added benefit of a guarantee (or withdrawal) period, to provide you access to your capital if required.
A lesser used type of annuity is a complying annuity. Complying annuities are either 50% or 100% exempt from the Assets Test for social security purposes. A small number of investors purchasing an annuity with superannuation monies rolled over from a self-managed super fund that is currently paying an Assets Test Exempt (complying) income stream may be eligible for a complying annuity. If you think you may qualify for a complying annuity we recommend you speak to your financial adviser.
Deferred Lifetime Annuities
A deferred lifetime annuity is a lifetime annuity where the payments do not start immediately. For example, the product might be purchased at age 65 with payments commencing at, say, age 85 and continuing for life, even if you live beyond 100.
Deferred lifetime annuities (DLAs) are not currently offered in Australia, although they can be purchased in other countries. For more information on DLAs, see our Policy debate page.