Prospective purchasers of a lifetime annuity should also plan with respect to how Services Australia will treat it for the aged pension asset and income tests in the event a full or part pension will be part of the retirement income. On the downside Services Australia take 60% of the annuity income toward the income test which - if you go by current annuity rates on offer - works out higher than the current 2.75% deeming rate for other income producing assets over the $64,500 "free" threshold that are subject to deeming. Having said that, the tax benefits from a super-purchased annuity will likely outweigh that lesser pension in many cases since of course a superannuation fund purchased annuity for a qualifying purchaser providers tax free income.

Purchasers should also understand that annuities are very profitable for the companies offering them since if you make no withdrawal during the withdrawal period they will keep every cent of your money, the capital component of which will have compounded over the decades. The difference of course is that the company has time on its hands that the senior-aged annuity owner does not have. A person buying an annuity at 70, for example, may not survive to see a severe market crash a decade later through to a full recovery another 5 years after that. The annuity provider company will. It is like a casino - the house always wins. For this reason it is best to simply view the annuity as a private pension paid to you by a third party that owes your estate nothing at all once you pass away, assuming you survive past that withdrawal period.

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