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Retirement phase income streams

Payment standards for non-account-based (RCV) income streams

Section: 16.12

Non-account-based income streams14 are flexible income streams that allow a retiree to invest in a guaranteed income stream with a residual value and no restrictions on term.

These income streams:

  • have a flexible term that may be fixed for any term or lifetime
  • do not have an identifiable account balance
  • may provide for an RCV, commutation value or withdrawal benefit that is no more than 100% of the purchase price (note that this is the only standard under which a non-account-based income stream such as an annuity can provide an RCV), and
  • must pay an annual income payment of at least a minimum amount (see minimum payments below). In practice, the requirement for minimum income payments each year may constrain a client's choice of RCV and/or fixed term.

Non-account-based income streams are most likely to be fixed term annuities.

There are two choices for a retiree wishing to invest their super in a fixed term annuity:

  • any term, with up to 100% RCV, but with each year's income payment of at least a minimum amount (calculated each year as shown below). In practice, the requirement for minimum income payments each year may constrain a client's choice of RCV and/or fixed term15, or
  • a fixed term annuity lasting up to age 100, with no RCV and a minimum payment fixed in the first year (using the minimum payment calculation below) where the total of payments from the annuity in a subsequent year cannot vary from the total of payments in the previous year unless the variation is as a result of an indexation arrangement or the transfer of the annuity to another person.

Minimum payments for non-account based (RCV) income streams

The minimum total payments in any year (excluding payments by way of commutation but including payments under a payment split) that must be made from a non-account based (RCV) income stream (rounded to the nearest $10) is calculated as shown below. It is a similar calculation to that used for account-based income streams, with purchase price used in place of account balance.

Minimum payment for non-account based income stream

Minimum annual income = Purchase price  X  percentage factor

where:

Purchase price = the total amount paid as consideration to purchase the income stream.

Percentage factor is determined from the recipient's age on commencement of the income stream and at each 1 July thereafter, using the table in section 16.6.

As with account-based income streams, a pro-rated income payment must be made in the first year and the 1 June rule continues to apply.

Last modified: Wednesday, July 24, 2019