Ask the Expert: Considering a gift or annuity? Here’s how it can affect your super

The annuity market is growing as people seek stable retirements.

The annuity market is growing as people seek stable retirements. Photo: Getty

  • Question 1: We are retired and live off state pension and super. With the volatility of the stockmarket my super is declining in value. Should I use it to take out an annuity?

An annuity is where you swap a lump sum of money to purchase a series of regular and guaranteed income payments.

A ‘lifetime annuity’, as the name suggests, would last your lifetime.

This is an important and big decision, as once you purchase an annuity you no longer have access to the funds.

However, I will mention that there are more annuity options now available that provide death benefits and some investment flexibility.

As you are giving up access to your funds, I would never recommend you put all of your money into an annuity. However, for some people that like the income security, then purchasing an annuity with some of your funds might be appropriate.

As well as considering annuities, you could also look at lifetime pensions, which are similar, or simply switch to a more conservative investment option within your super.

The following factors should be considered when weighing up your decision:

  1. What is my ‘risk profile’? Can I accept some short-term ups and downs in my investment balance to try and achieve a higher long-term return?
  2. How much income do I need to live off?
  3. Will an annuity increase my age pension entitlements?
  4. How much money do I need to be able to access at short notice?
  5. Are you in good health and likely to live to your life expectancy and beyond?
  6. Do you want to leave an inheritance for your beneficiaries?

As you can see, it’s not simply a matter of buying an annuity to reduce market volatility. I suggest seeking personalised advice before making this decision.

  • Question 2. Hi, I am fully retired aged 64. I have super $1.2m which I draw an income $78k p/a plus investments about $350k. I own my home and have two investment properties (units) about $950k and get income $30k p/a. Would I be eligible for a pension, even a part pension, as I self-funded my retirement? Graham

Hi Graham,

Centrelink apply an income and asset test for the age pension. Whichever test provides the lower benefit is the test that is applied. If either test results in a nil pension, then that is applied.

Under the income test you are probably just over the maximum limit.

Under the asset test, which does not include your principal home, you are well over. As of February 2023, a single home owner can have a maximum of $622,250 (a couple can have $935,000).

You currently have $2,500,000 ($1,200,000 + $350,000 + $950,000).

Unless and until your level of assets reduces to below $622,250 (which is indexed each year) by age pension age then you will not receive a part age pension.

  • Question 3. We would like to assist our children to get a deposit for their first home. My husband and I do not receive the age pension and are partially living off superannuation with one income still coming in. Can we gift our children $25,000 each without it affecting us financially (say, gift tax, etc).

Yes. If you are not in receipt of any Centrelink, then of course there can be no Centrelink implications.

Be aware that if you were to become eligible and apply, then Centrelink will look back five years.

There is no gift tax either, therefore you can simply take funds in your bank account and transfer the required amount to your children, no taxes would apply.

The only tax that would be applicable would be if you sold investments like shares and property where capital gains may be an issue.

  • Question 4. My husband and I receive a part pension and own our own home. Would it be ruled as a gift if a term deposit we have in both our names is transferred into one name only? We want to keep our assets more even. If one passes the other can still receive a part pension. Thank you.

The good news is no.

Transferring assets and investments between members of a couple is not counted under deprivation (gifting) rules by Centrelink.

Therefore, this should not have a negative effect on your part pension.

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