Retirement phase income streams
Types of super income streams that can be paid
An income stream must meet the pension and annuity standards set out in the SIS regulations to be a superannuation income stream.
The pension and annuity standards changed on 1 July 2007 as part of the simpler super reforms. Below is a summary of the rules depending on the commencement date of the income stream.
Before 1 July 2007
Pensions that commenced before 1 July 2007 and meet the previous regulations are deemed to meet the new minimum standards.
Between 1 July 2007 and 19 September 2007
Income streams may commence under either the old or the new SIS regulations. This effectively provides a transitional period during which an income stream provider can choose when to offer income streams under the new regulations.
From 20 September 2007 onwards
From 20 September 2007, only those income streams that meet the current regulations can be paid. The current payment standards are more flexible and less prescriptive than the old standards, giving super funds greater choice in the type of income stream offered.
For example, provided it meets the current payment standards for an account based income stream, a fund can offer an income stream that also meets the old standards for a term allocated pension (sometimes referred to as a 'TAP clone').
From 1 July 2017 onwards
A new category of income streams was added to the SIS standards from 1 July 2017. This category covers a range of products aimed at reducing longevity risk in retirement and includes deferred income streams, investment-linked income streams and group self-annuitised products.
Superannuation funds and life insurance companies will receive a tax exemption on income from assets supporting these new income stream products provided they are currently payable, or in the case of deferred products, held for an individual that has reached retirement.
Categories of income streams
There are essentially five different types of super income streams that can now commence to be paid that meet the current pension and annuity standards in the SIS regulations:
1. Account-based income streams - these are flexible income streams with an identifiable account balance. They are commutable at any time and have a requirement for minimum income payments. They do not have a maximum income payment requirement unless commenced under the transition to retirement condition of release. Transition to retirement income streams, which have additional payment standards, are a subset of these income streams. TAP clones are also a subset of account based income streams. TAP clones meet the current account based income stream standards as well as the pre-1 July 2007 term allocated pension standards.
2. Non-account-based (RCV) income streams - these are flexible income streams that do not have an identifiable account balance but may be commutable and have a residual capital value. There is no restriction on the term of the income stream, but there is a requirement for a minimum annual income payment.
3. Lifetime (nil RCV) income streams - there are two types of lifetime income streams available:
- non-commutable lifetime income streams and
- commutable lifetime income streams.
4. Fixed term (nil RCV) income streams - a commutable income stream payable for a fixed term based on the recipient's age at commencement.
5. Innovative income streams - income streams payable for a beneficiary's remaining lifetime, with income stream payments that can be guaranteed in whole or part by the income stream provider, or determined in whole or part through returns on a collective pool of assets or the mortality experience of the beneficiaries of the asset pool. These income streams may also have a deferral period for annual payments and are permitted to be commuted subject to a declining capital access schedule and preservation rules.
In all cases, income streams cannot be added to through contributions or rollovers and neither the capital nor income can be used as security for borrowing.
Last modified: Wednesday, July 24, 2019