Allocated Pension

Submitted by Share Trading on 23 February, 2010 - 13:44

Allocated Pension
The concept of Allocated Pension is gaining popularity among retirees in Australia. Allocated pension allows a retiree to enjoy the sum of their superannuation and use it as capital for investment. With Allocated pension scheme, retirees can enjoy a regular stream of income from their superannuation funds quarterly, monthly, half yearly or yearly over a period of time that approximates to the life expectancy. The other term that closely relates to allocated pension is account based pension or annuity.

The Basic Attributes of an Allocated Pension

  1. the flexibility or the liquidity of the funds
  2. Provision for self managed withdrawals and
  3. Multiplication of the capital money through further investment throughout the life expectancy period

One of the main reasons why allocated pension is becoming more popular is because it is a tax free scheme. Anyone over the age of 60 receives tax free interest, dividends and capital gains on the allocated pension. In contrast, marginal taxes for retires are applicable for any investment return outside the super environment. Allocated pension is often proven to be beneficial over most other income or investment strategies for retirees (like withdrawing the whole lot and investing somewhere in the stock market or purchasing properties and so on) as it is secure and can ensure stable cash flow.

When Can You Cash Your Allocated Pension Account?

The next great thing about allocated pensions is that although it is self managed, once bought it doesn’t mean that the recipient will necessarily have to wait till the life expectancy period to get their total. An allocated pension account can be cashed in any time as the owner of the fund wishes. In most cases it is only a matter of filling a couple of forms. (However it is recommended to check if there are terms and conditions regarding withdrawal)

Although allocated pension offers great deal of flexibility, one cannot initiate and then pause the pension process at will. When someone buys this financial product they will at least have to receive the minimum sum for a year.

The Earning Potential from Allocated Pension

At the beginning, the allocated pension amount is calculated according to the age of the retiree and the amount of his super savings. The minimum amount is determined by the government at the beginning of each fiscal year. Pensions last till all funds are drained out. On the other hand, if the retiree dies, the remaining value is forwarded to the dependants.

Even though individuals can withdraw the funds or use allocated pensions to receive regular cash flow there are great deal of differences between bank accounts and allocated pensions. With allocated pensions, retirees have easy access to tax free investment choices like managed funds, listed properties and local and international shares. Using this strategy, people can have their allocated pension use the money as capital for investments and potentially earn a return. For most cases this strategy is sufficient to maintain a stable financial status even after retirement.

Incomes derived from an allocated pension is generally made available after retirement however even working people aged around or above 55 are considering buying allocated pensions as a pre-retirement investment plan and certainly this lessens the stresses during that transitional period of retirement.

Glossary List

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