An Imputation Bond can be set to generate a tax-effective and regular “annuity-like” payment stream. Unlike ordinary annuities, there is total flexibility to vary at any time the stream’s payment amounts and/or their frequency of drawing them against the insurance bond’s value.
“But it is important to understand that an Imputation Bond regular payment stream is not an ordinary type annuity, such as when you invest a lump sum in return for a pre-determined (often guaranteed) lifetime or fixed term regular income stream,” says Ross Higgins, Managing Director of AUSTOCK Life, a leading specialist issuer of insurance bonds.
Using an Imputation Bond to generate an “annuity-like” payment stream involves shifting the product’s investment and longevity risks from the issuer to the investor:
- The suitability of the investment portfolios selected by individual investors to support their desired level of payment amounts
- The payments frequency and how long the payment stream might last before it is exhausted.
In AUSTOCK’s case, there is a menu of 30 investment options to choose from and can be utilised to back an investor’s desired payment stream. Additionally, there is tax-freedom to manage each Bond’s individual mix by switching CGT-free between Investment Portfolios at any time.
Advantages over lifetime annuities
Importantly, this type of “annuity-like” payment stream can have advantages over ordinary or lifetime annuities, including:
- The payment stream created by you is variable and can be flexibly managed. For instance, it could be structured to approximate a Bond Owner’s (or joint Bond Owner’s) life expectancy or to last for a fixed term and this can be altered at any time;
- The ability to replace or introduce a succeeding “annuitant” at any time, even prior to the death of the original Bond Owner. As such, this strategy can be useful in addressing longevity risk; and
- Estate planning options for a Bond’s “residual” value after the regular payment stream ceases. The residual can be structured under your Bond to pass to Will or non-Will beneficiaries as Tax-Free distributions and/or paid to specific Bond Nominees.
The most suitable investors?
Investors on a high tax rate and/or investors seeking to mix a traditional annuity with another annuity-like product
Variable payment streams created in this fashion may suit higher taxed investors, including those who have an ordinary guaranteed type Annuity. These investors might want to combine with (or have supplemented by) a variable “annuity-like” payment stream, where its performance is investment-linked to their own choice of Investment Portfolio options.
Some investors don’t want all their annuity allocation into a fixed rate product
These variable payment streams might also suit investors who are averse to ordinary guaranteed type Annuities because they do not want to be locked into a fixed rate lifetime or fixed term annuity, nor be locked into their fixed annuity payment amounts and frequency.
Early access without penalties which apply to annuities
These investors might want irregular access to their investment without incurring early access penalties. Alternatively they might want the ability to make additional contributions to their same investment at any time.
Account-based pensioners who need another regular payment stream
Other investors who might benefit from these type of payment streams include those who have superannuation Account-Based Pensions that do not fully meet their financial needs because of insufficient investment accumulation due to restrictive superannuation contribution caps, employment contribution levels, age-based restrictions or due to any draw-down range limits.
Annuities and associates payment streams are complex issues
“We recommend that if you use an Imputation Bond for this strategy that you obtain initial and ongoing professional advice from a Financial Adviser,” says Mr Higgins.
Media inquiries
Ross Higgins
Austock Life
Managing Director
03 8601 2056 Or 0407567774
life@austocklife.com
www.austocklife.com