Allocated pensions - all you need to know

1. Allocated pensions - all you need to know Colonial First State Investments

2. What is an allocated pension? A regular income stream paid from an account held in your own name within a super fund

3. What is an allocated pension? • Flexible income payments between prescribed min and max levels • vary the frequency of payments • Earnings tax is 0% • Defer lump sum tax

4. What does Allocated mean? • Invested Capital is held in your name • Access capital at any time (subject to tax) • continues until account is exhausted • spouse gets balance on death • These features are not available with lifetime products

5. Allocated Pool Unallocated Pool Mr Smith Ms Jones Mr Davis Mr Davis Mr Smith Ms Jones

6. Type of fund • Two types of investment structures to meet your needs • Do-it-yourself fund - investing in either direct or professionally managed investments • Public offer funds - where the assets are professionally managed

7. Who can invest? • Retired over 55 • over 65 • those with unpreserved rollovers • cannot use non-ETP monies (must be super monies)

8. Are there any restrictions? • Only on a pension paid each year • must be within Gov’t set min and max levels • calculated each year based on age and account balance as at 1 July

9. Can I access my money? • Can currently commute all or part of account • Gov’t may restrict in the future

10. Flexibility • Pension can be varied • lump sum withdrawals anytime • account balance paid on death • can nominate ‘reversionary pensioner’ • How long will it last?

11. Account balance Taking MAX pension

12. Account balance Taking MIN pension

13. Tax benefits • Investment earnings are not subject to tax • Lump sum tax deferred by rolling over • Pension income is taxed in a similar way to your salary (ie PAYG tax held) • pension payments • tax rebate • part tax free • no provisional tax / instalment activity statement

14. Taxation of Allocated Pensions Gross Income - Deductible amount = Taxable Income Deductible Amount (purchase after 1/7/94) CGT Exempt component + Invalidity + Undeducted Contributions Longest Life Expectancy Rebate Taxable income x 15% x Rebateable proportion

15. How does Centrelink treatment them? • Assets test • 100% of your account balance will be counted. • Incomes test • Only a portion of your income will be counted • Gross income - deductible amount (DA) • DA = Purchase price Life expectancy factor • Allocated pensions are said to be income test friendly.

16. Case study Social Security Allocated Pensions are Income Test friendly if the Minimum pension payment is drawn. Example: Barry invests $100,000 The Account Balance is assessed under the Assets Test

17. How can they maximise my benefits? • Undeducted contributions (UDCs) • These are after tax monies you contribute to super where you have not claimed a tax deduction • The more UDCs you have in super the more tax free income you will receive when you commence an allocated pension

18. How can they maximise my benefits? • Spouse contributions • Can be made on behalf of your spouse • No work test requirement • The receiving spouse must be under 65 • For tax purposes they are treated as UDCs & are included in the calculation of your tax free amount

19. What do you need? • Right mix of income • right underlying investments • right tax advice

20. Disclaimer This information has been prepared without taking into account your particular financial situation. Before making an investment decision based on this advice, you should assess your own position, and if appropriate, seek the assistance of your financial adviser.