payments made for the lifetime of another person, usually a spouse. This is commonly referred to as a ‘reversionary’ income stream. Because it is a payment for life, it is not uncommon for the payment to be structured to increase annually with movements in inflation or some other set rate of increase.

It is also possible to consider some form of income protection by selecting what is generally referred to as a ‘guarantee period’ with the lifetime pension or annuity. Should the main beneficiaries die within the guarantee period, income payments may continue to another beneficiary until the end of the guarantee period. The most common guarantee period selected in the past has been 10 years. Where the income stream is reversionary, it is possible to select a guarantee period which is the longer of the beneficiary’s life expectancy or the spouse’s life expectancy, but not greater than 20 years.

With most lifetime income streams the beneficiary does not generally have ready access to their money. With some there are cashing rights.

# **3.4 Life expectancy income streams**

The life expectancy income streams are guaranteed (usually by the provider of the income stream) to be payable for a time period broadly equivalent to the life expectancy of the primary beneficiary at the time of purchase. There are two types of life expectancy income streams—life expectancy pensions and life expectancy annuities. A life expectancy pension is provided from a superannuation fund, whereas a life expectancy annuity is an annuity contract issued by a life insurance company. As with other types of pensions, only ‘superannuation money’ can be used to invest in a life expectancy pension, whereas a life expectancy annuity can be purchased with both superannuation and ordinary savings. When a life expectancy income stream is purchased, a person can choose the term over which it is payable, subject to certain limits. The term however will be fixed from commencement. For example, if a person’s average life expectancy is over 17.7 years (age 65 male); the minimum term of the investment must be at least 18 years. The maximum term of the investment must be equal to the period from the commencement day of the income stream until a person reaches age 100. Therefore a fixed term of 35 years is permitted. Payments make also take into account the life expectancy of a spouse. Reversionary benefits can be paid to a spouse r dependent.

# **3.5 Fixed term income streams**

A fixed term income stream is simply one that is payable for a set period of time. This can be for any period of time, from one year to around 25 years. There are two types of fixed term income streams—fixed term pensions and fixed term annuities. A fixed term pension is provided from a superannuation fund, whereas a fixed term annuity is an annuity contract issued by a life insurance company. A fixed term annuity can be purchased either with superannuation or ordinary savings.

A term annuity may allow the purchaser to receive back a percentage of the original capital at the expiry of the contract – known as the residual capital value (RCV). Many of the short term annuities specify an income of interest only and 100 percent of capital. Survey data (Plan for life, 2007) suggests sales with terms greater than 5 years account for over 90 percent of the total.

Fixed term income streams are inflexible when it comes to accessing invested capital on an ongoing basis. While generally most fixed term income streams are commutable (that 18