An annuity can be purchased with either super or ordinary (non‑super) savings and converts a lump sum into guaranteed income payments for a set period of time. The two main types
of annuities are:
- Fixed term annuities which pay a guaranteed income for a defined period of time eg 20 years.
- Lifetime annuities which pay a guaranteed income for the remainder of your life.
No investor risk but limited flexibility
By guaranteeing your future income payments regardless of the underlying performance, the annuity provider effectively carries all the investment risk. The trade off for an investor is limited flexibility.
While an annuity may offer an indexing option to protect your income against inflation, you generally have no choice of investments, can’t change your income and can only access your capital in special circumstances.