Calculate how much capital is needed to fund a desired income stream, or project income from a given lump sum. Applies to Australian lifetime and term annuities.
| Item | Value |
|---|
Australian lifetime annuities are sold by life insurance companies (Challenger, AIA, MetLife). From July 2019, certain annuities receive favourable Age Pension assets test treatment. The government-backed Pension Loans Scheme (now Home Equity Access Scheme) provides an income stream secured against property.
An annuity is a financial product that converts a lump sum payment into a series of regular income payments over a defined period or for life. In Australia, annuities are primarily used as retirement income products — converting superannuation savings into guaranteed, predictable income that cannot be outlived (for life annuities).
Unlike account-based pensions (which depend on investment returns and can run out), life annuities provide certainty of income regardless of how long you live or how markets perform. The trade-off is giving up flexibility and capital access in exchange for that certainty.
| Type | Duration | Risk | Flexibility | Best For |
|---|---|---|---|---|
| Lifetime (life) annuity | Pays until death | Longevity risk eliminated | None — fixed once purchased | Guaranteed income floor in retirement |
| Term annuity (fixed term) | Set number of years | You bear longevity risk | Some (residual returned at end) | Bridging a specific income gap |
| Indexed annuity | Lifetime or term | Low | Low | Inflation protection on retirement income |
| Account-based pension | Until balance depleted | Investment + longevity risk | High | Flexibility and access to capital |
| Annuity Type | Age at Purchase | Annual Income | Monthly Income |
|---|---|---|---|
| Lifetime (single life) | 65 | ~$30,000-$35,000 | ~$2,500-$2,917 |
| Lifetime (indexed at CPI) | 65 | ~$24,000-$28,000 | ~$2,000-$2,333 |
| Term (20 years fixed) | 65 | ~$36,000-$40,000 | ~$3,000-$3,333 |
| Joint life (both partners) | 65/63 | ~$26,000-$30,000 | ~$2,167-$2,500 |
What is an annuity in Australia?
An annuity converts a lump sum into regular income payments. Lifetime annuities pay income until you die, eliminating the risk of outliving your money. Term annuities pay for a fixed period. Both are purchased from life insurance companies regulated by APRA. Annuities are most commonly purchased using superannuation savings as a retirement income strategy.
Is annuity income tax-free in Australia?
For annuities purchased with funds from a taxed superannuation fund by someone aged 60 or over, the income is generally tax-free. Between preservation age (60) and 59, a 15% tax offset applies. Annuities purchased with untaxed funds (some government schemes) are taxed at marginal rates with a 10% offset. Always confirm tax treatment with a financial adviser.
What happens to an annuity when you die?
This depends on the annuity type and terms selected at purchase. Options typically include: return of residual capital to estate or beneficiaries; reversionary pension continuing to a surviving spouse; guaranteed period (e.g. minimum 10 years of payments even if you die earlier). These features reduce the annuity income rate — certainty costs more.
Should I buy an annuity in Australia?
Annuities suit people who: want guaranteed income they cannot outlive; have limited other income sources (the Age Pension alone may not cover expenses); prefer certainty over flexibility; or worry about cognitive decline affecting investment decisions in later retirement. They are less suitable for those with dependants needing capital, those with short life expectancy, or those who prioritise flexibility.