✓ 60-year-old female
✓ $600,000 in savings
✓ $50,000 annual retirement income goal
✓ MyNorth Deferred Lifetime Income account
✓ Account-based pension
✓ $9,954 received in annual bonuses
✓ $12,387 received in Age Pension
Nora is a 60-year-old single retiree with $600,000 in savings and aims for a $50,000 annual income in retirement. Her adviser suggests using both a MyNorth Deferred Lifetime Income account and an account-based pension to achieve her goal.
By transferring $300,000 into the MyNorth Deferred Lifetime Income account, Nora enjoys tax-free earnings, an annual bonus, and a 40% upfront discount on future age pension assessment. She is advised to take the maximum lump sum withdrawals to fund a portion of her income goal, which equally reduces her asset test value. The account also accepts contributions.
By moving the remaining $300,000 to an account-based pension, she additionally benefits from tax-free earnings and capital access. Nora withdraws income from her account-based pension to subsidise the remainder of her income goal.
The table outlines Nora’s adviser’s recommendations.
From age 60 to 64, Nora has been able to meet her $50,000 retirement income goal while reducing her total Centrelink assessable assets to $375,517. At age 65, Nora sells her home and makes an additional $300,000 downsizer contribution to her MyNorth Deferred Lifetime Income account. Here’s a summary of Nora’s retirement outcomes from age 65 to 67.
Due to her reduced MyNorth Deferred Lifetime Income asset test, Nora receives $12,387 pa in age pension entitlements at age 67, which contributes to her total income income of $70,559 including lump sum withdrawals and income payments. Had she instead utilised an account-based pension alone from age 60, her asset test would have exceeded the upper limit, and Nora would not have been eligible to receive age pension until the age of 79.
Here’s a summary of the value of the deferred strategy compared with a 100% account-based pension strategy.
And here’s the estimated difference in the Centrelink assessable assets between the deferred strategy and a 100% account-based pension strategy from age 60-67.
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Notes
** The Centrelink assets test value is 60 per cent of purchase amount to age 84 (or 5 year minimum), and 30 per cent thereafter
*** Contributions will increase the Centrelink purchase amount
**** Nora can elect to reduce her lump sums to zero till age 99 whilst in the Deferred Lifetime Income account
***** Lump sums are not assessed as income and deeming does not apply
- The Capital Access Schedule limits in the SIS Regs limit the total amount of voluntary lump sums permitted from the Deferred Lifetime Income account
- Nora’s Transfer Balance Cap is equal to her purchase amount
Assumptions
- Balanced RP = 6.5% across all account structures;
- We have ignored admin, investment and advisers fees;
- Ignored other Centrelink assessable assets and income;
- Deferred Lifetime income account as opted out of death and exit benefit to increase annual bonus;
- Age pension is based on July 2023 single homeowner thresholds and rate; and
- All values are nominal.
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1 Deferred Lifetime Investment Linked Winner, and Innovation Winner, Plan for Life Excellence Awards, 2022, Pension Fund Design and Reform Award winner at World Pension Summit 2023.