Retirement phase income streams
Term allocated pensions (TAP clones)
TAPs are best described as a hybrid between allocated pensions and fixed term pensions and annuities. TAPs may also be referred to as 'growth pensions' and 'market-linked income streams (MLIS)'.
TAPs commenced on or after 20 September 2007 have lost their 50% assets test exemption for centrelink purposes and are now fully asset tested (refer to Chapter 9). Consequently, many public offer funds no longer offer TAPs. TAPs commenced after 19 September 2007 must be funded from the rollover of an existing non-commutable income stream (commenced prior to 20 September 2007) and meet the account-based pension standards. They may be more commonly found in SMSFs.
Also many SMSF members commenced defined benefit pensions (either lifetime or life expectancy complying pensions) as part of an RBL management strategy. Since RBLs were abolished, continuing this strategy may no longer be necessary and rollover to what is commonly referred to as a 'TAP clone' (ie a pension commenced under fund rules that meet the old pension standards as well as the account based pension standards) may be more cost effective.
When rolling from a defined benefit pension to a TAP clone, existing pension reserves may be allocated to the member. Such amounts will generally be counted towards the concessional contributions cap unless they are also used to commence the TAP clone. For more information see ATO ID2012/84. Allocating pension reserves to a member may also impact the social security assessment of the TAP clone.
Like allocated pensions, TAPs can only be purchased with super monies and are account-based products with the investor having a choice of investments including the ability to access growth investments. Payments are not guaranteed, meaning the investor bears the investment risk.
Other features of TAPs are:
- the investor can choose the term from a specified range (see below)
- payments are made at least annually (with pro-rata payments required where the TAP commences on a day other than 1 July)
- no payment is required in the first year where the income stream commences on or after 1 June
- they cannot be transferred to another person except on the death of the primary or reversionary pensioner to the deceased's dependant(s) or LPR
- TAPs are generally non-commutable (see the commutation rules for complying income streams in section 16.11)
- must have a nil RCV, and
- the annual payment will be determined by reference to payment factors (see below).
Term of TAPs and life expectancy income streams
Unlike allocated pensions, TAPs have a fixed term. The investors of TAP and life expectancy pensions and annuities can choose a term as follows:
Pensioners are permitted to select a term not less than their (or their reversionary's) life expectancy rounded up.
Pensioners are permitted to select a term not exceeding the greater of:
- the pensioner's (or the reversionary spouse's) life expectancy as if they were five years younger, or
- 100 minus the pensioner's (or the reversionary spouse's) age at commencement.
The life expectancy factors used in this calculation are shown in section 16.15.
Minimum annual payments from TAPs will be based on the payment factors (PF) at 1 July each year under the old standards. The payment factors for TAPs commenced from 20 September 2004 are provided in the table below.
TAP payment factors
|Term of TAP remaining rounded in whole years||PF||Term of TAP remaining rounded in whole years||PF||Term of TAP remaining rounded in whole years||PF|
|70 or more||26.00||46||22.70||22||15.17|
|49||23.28||25||16.48||1 or less||1.00|
Source: SIS Regulations 1994, Schedule 6.
|Annual TAP income
Annual income = commencement day or 1 July account balance +/-10%
The annual payment will be calculated by dividing the account balance on 1 July (or commencement day for the first year) of each year by the payment factor that corresponds to the remaining term of the income stream. The resulting amount will be rounded to the nearest $10.
A pensioner may vary the amount of pension income by plus or minus 10% of the annual calculation.
A complying income stream such as a TAP may be rolled over after 1 July 2007 provided it is rolled over to an income stream:
- that meets one of the new standards (as set out in sections 16.3 to 16.10), and
- meets the standards set out in the old regulations for complying fixed term or term allocated income streams.
Last modified: Thursday, August 24, 2017