This guide explains general concepts for educational purposes. It is not financial, tax or legal advice, or a recommendation to buy, sell, hold or change a financial product or strategy. It does not take into account your objectives, financial situation or needs. Rules, caps, thresholds and product terms can change. Check the current official information and obtain advice appropriate to your circumstances before making a financial decision.
Compare the income job each product performs
An account-based pension and an annuity can both provide retirement income, but they operate differently. The useful starting point is the spending you want the income to cover and how much flexibility you need elsewhere in the plan.
An account-based pension generally leaves your money invested in an account from which payments are drawn. An annuity is a contract with a provider for payments under specified terms, which may cover a fixed period or life. There are different types, so the word annuity alone is not a complete product description.
Understand payments and access to capital
An account-based pension usually allows flexibility in withdrawals subject to its rules, but its balance is affected by investments and payments. A lifetime annuity can address the risk of living longer than expected through ongoing contractual payments. Access to capital and the payment design vary by product.
Compare what would happen if you needed a substantial amount for a move or health expense. Also check whether payments stay fixed, increase under a specified formula or depend on an investment measure. The starting income is only one part of that comparison.
Consider inflation, a partner and the estate
An income that looks adequate today may buy less in future years. Understand any indexation or variable-payment features and what they mean for spending. Product promises depend on the contract and provider; they are not a statement that every financial risk disappears.
Ask what happens if you or your partner dies. Continuing payments, withdrawal values and death benefits can differ materially. The intended beneficiary arrangements need to be consistent with the rest of the estate plan.
Model a combination before committing
A retirement plan may combine different income sources with accessible savings. For example, one component may help cover essential spending while another supports variable expenses and future flexibility. The appropriate amounts depend on the household rather than a standard allocation.
Review current product documents, fees, tax and Centrelink treatment before deciding. Some choices can be difficult to reverse. Compare the complete income path, reserves and survivor position rather than selecting the arrangement with the highest first payment.