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NEWS - PLANNING
How allocated pensions work
6/2/2003
Allocated pensions are most popular among self-funded retirees. They are flexible income streams offered by large financial institutions and work much like retail managed funds.
Clients' money is pooled and invested in major financial markets, property or fixed interest. Advantages include the ability to vary annual payments, within minimum and maximum levels set by the government, and the ability to withdraw lump sums at any time.
The downside is the holder is not guaranteed a specified return and an allocated pension may not last a lifetime.
Deutsche Asset Management's graph illustrates how an allocated pension purchased by a 65-year old would work.
It assumes the purchase price of the pension was $300,000 and its assets generated a 7per cent annual return.
The investor opts for an annual payment of $20,000 indexed at 3per cent.
It shows pension paid each year as well as the account balance over time.
Returns from allocated pension products are in managed fund performance tables supplied by Morningstar which appear weekly in the Financial Review's Smart Money.
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