Term Allocated/Market Linked Pensions (TAPS)

Term Allocated Pensions/annuities also known as (market-linked pensions or annuities) are one of a number of products that can be purchased using money from a superannuation fund or a retirement savings account. They are a market-linked fund providing an income stream.

The Term Allocated Pension is designed to try to last as long as you selected at outset. You can choose a prescribed term or select the prescribed life expectancy assumptions for your age. Typically the longer the term you select, the lower the income payment you will receive. This enables your pension to last longer whilst keeping your assets in a tax free environment.

An investment account is set up with the money from which you receive a fixed percentage each year. The fixed percentage is based on the size of your investment fund each year and your income can go up and down in line with market movements. You may choose how your money is invested by the product provider.

What are the benefits?

Up to 20 September 2007 TAPS were 50% assets test exempt for Centrelink purposes. This was one of their most attractive features as in other respects they are a less flexible way to provide an income for your retirement than allocated pensions.

Since then most product providers have ceased to offer the product to new investors.

From 20 September 2007 a term allocated pension (TAP) can be rolled over to a new provider and still retain its 50% asset test exemption provided that all of the assets in the original TAP are used to purchase the new TAP.

Different rules apply to rolling over other complying income streams which makes retention of the assets test exemption problematic.  In limited circumstances, some SMSF’s complying income streams may retain their assets test exempt status when rolled over.

In general, Centrelink will assess:

> Complying income streams purchased prior to 20 September 2004 as 100% asset test exempt;

> Complying income streams purchased between 20 September 2004 and 20 September 2007 as 50% asset test exempt; and

> Complying income streams purchased on or after 20 September 2007 as 100% assessable.

From 1 July 2008 to 30 June 2010

The annual income stream payments can be varied to between 45% and 110% of the amount calculated using the normal payment factors.

From 1 January 2006

Changes to new Term Allocated Pensions and other life expectancy income streams:

> extend the maximum term of these income streams so that payments can continue until the recipient reaches 100 years of age (or until a person's spouse reaches 100 years of age), and

> allow these annual income stream payments to vary from the amount calculated under the normal payment rules by up to 10%.

The income for a Term Allocated Pension/Annuity is calculated at commencement and then at 1 July each year.

Source: SIS Regs Schedule 6