Deferred superannuation income stream - the price of lifetime guarantee

Nothing is for nothing.  The cost of the lifetime guarantee is the restricted commutation amount which can be paid in respect of the deferred superannuation income stream.  This restriction on commutation amount applies once the deferred superannuation income stream is in retirement phase.  This will occur when the member who is issued the income stream attains age 65, becomes retired for superannuation purposes or becomes permanently incapacitated.  If the income stream has been issued after the member has satisfied any of those conditions, then the income stream will be subject to the restriction on the commutation amount from the date of issue of the income stream (subject to a 14 day free look period).

The extent of the restriction depends on whether the commutation arises by reason of the death of the member or not.

If the commutation arises because of the death of the member and death occurs during the first half of the member’s life expectancy period (ie the period of the member’s life expectancy as at the date the income stream was issued) – then the maximum amount which can be paid is the super capital which was used to acquire the income stream  -  essentially the “purchase price” of the income stream.

If commutation arises because of the death of the member and death occurs during the second half of the member’s life expectancy period – then the maximum amount which can be paid is a straight-line declining proportion of purchase price of the income stream based upon the remaining portion of the life expectancy period.

If commutation occurs on or after the end of the life expectancy period – whether it is due to the death of the member or otherwise – then no amount can be paid.