What is an annuity

What is an annuity?

An annuity is a financial product that can be used to provide you guaranteed regular income in retirement

Annuities provide a guaranteed regular income for life, or for a chosen investment term, helping to give peace of mind in retirement.

An annuity complements other retirement investments and sources of income, such as a pension from your super and the Age Pension. They can be used as the foundation of a resilient retirement income portfolio.

How do annuities work?

You invest some of your savings with Challenger and we pay you guaranteed regular payments for either a fixed period or for the rest of your life depending on the type of annuity you choose.

If you choose a Challenger lifetime annuity, we will continue to provide your payments for as long as you live. You can even choose to protect those payments from the impact of inflation by linking them to the CPI index.

Before making a decision about whether to acquire a Challenger annuity you should read the relevant product Target Market Determination (TMD) and Product Disclosure Statement (PDS).

Types of annuities

We understand that your retirement goals and lifestyle needs are unique. That's why we offer a choice of annuities to suit you. You can use part of your super or your personal savings to invest with a minimum investment amount of $10,000. 

Anyone aged 18 years and older can invest in an annuity, although if you are using your super to invest, you must be aged 601 or over and have unrestricted access to your super.

Lifetime annuities
Fixed term annuities
Challenger Lifetime Annuity (Liquid Lifetime)

We all want different things from retirement but share a common need: income. Challenger lifetime income products deliver guaranteed regular income payable for life, regardless of how long you live.

With a Challenger lifetime annuity as part of your retirement plan you can build a more resilient investment portfolio because the payments from your annuity are guaranteed to be payable for your lifetime. Liquid Lifetime options canprovide:

  • guaranteed regular payments for life (and your spouse’s life if you choose)
  • payments that start immediately or, for some payment options, on a future date you choose (if using super savings to invest)
  • payments that are fixed, that keep pace with inflation, or are linked to changes in the RBA cash rate or investment markets
  • a long period where you can access a lump sum if your circumstances change2
  • a long death benefit period where a lump sum is payable to your estate or nominated beneficiaries2
  • regular income is tax-free if you use your super to invest. If you invest with other non-superannuation personal savings, only part of your income is taxable
Challenger Guaranteed Annuity (Fixed Term)

A secure investment that provides a guaranteed, regular income for a fixed term you choose.

  • the choice of a fixed term between one year and 50 years
  • the choice of monthly, quarterly, half-yearly or yearly payments
  • your investment repaid at the end of the fixed term unless you choose to have some or all of it repaid throughout the fixed term as part of your regular payments
  • if you are using some of your super to invest in a Challenger term annuity, your regular payments are tax-free. If you invest with non-super money the tax treatment will be different
1. Generally, to have unrestricted access to your super between the ages of 60 and 65 you must have ceased work. There are some limited circumstances where you may be eligible to invest with super money if you are under age 60, for example if your super fund has assessed you as totally and permanently disabled.
2. You can ask us to remove these features in return for higher starting payments. But the choice is totally yours.

Important notes: Age Pension benefits described above will not apply to all individuals. Age Pension outcomes depend on an individual (or couple’s) personal circumstances and may change over time. While lifetime income streams may immediately benefit some Age Pension eligible retirees who are assessed under the assets test, in later years, if assessed under the income test, any ongoing Age Pension benefits may be reduced.

Why choose an annuity?

Retirement is a life-changing event. As you adjust to your new lifestyle, you’ll need to think differently about your finances. Moving from earning an income to drawing on your retirement savings and investments can be a big shift mentally. And it can bring up financial concerns you haven’t thought too much about before, such as:

  • the risk of outliving your retirement savings and becoming completely reliant on the Age Pension
  • the impact of market conditions on the value of your investments during your retirement
  • the risk that over time inflation will increase the cost of living. This means the income received from your investments may also need to increase in line with inflation to maintain your standard of living. 

Annuities can help to address these concerns so you can relax and enjoy your retirement.

Features of annuities

Make your retirement income last

Challenger’s annuities will pay you a guaranteed regular income for life, or for a chosen investment term, helping to give peace of mind in retirement.

Inflation linked income to help protect your lifestyle

A Challenger annuity gives you guaranteed regular income that can keep pace with inflation.

Flexibility to withdraw if your circumstances change

While Challenger annuities are designed to be held for the full investment term, there may be flexibility to access a lump sum if your circumstances change.

A guaranteed death benefit

A guaranteed death benefit is payable for the duration of your life expectancy, up to a maximum of 27 years. The death benefit equals 100% of the amount invested for the first half of the death benefit period (rounded down to a whole year) and we don’t reduce the death benefit for any income that has already been paid to you.

Potential to get a boost to your Age Pension

Access an immediate Age Pension boost if you are an asset tested part pensioner, because only 60% of the amount invested into a Challenger lifetime annuity counts towards the relevant Centrelink/DVA asset test.

How we cover our promises to you

Challenger annuities are provided by Challenger Life, a Life Company regulated by the Australian Prudential Regulation Authority (APRA).

Benefits of annuities

Guaranteed regular income Protection against key retirement risks Helping you to spend confidently in retirement
They provide a guaranteed regular income, either for your lifetime or for a fixed term of your choice.
They give you an additional layer of protection for life, or for a chosen investment term. They can act as a safety net.

Annuities can be used to help cover your living costs and maintain your standard of living while in retirement.

Anyone aged 18 years and older can invest in an annuity, although if you are using your super to invest, you must be aged 601 or over and have unrestricted access to your super. There is a minimum investment amount of $10,000.
For annuities purchased with superannuation money, income payments and lump sum withdrawals are generally tax-free if you are age 60 or over.

For annuities purchased with your retirement savings (outside super), income payments and lump sum withdrawals may have some taxable income. Challenger provides an annual PAYG statement which has all the details you need to complete your tax return.

For tax treatment of death benefits see the FAQ ‘Are annuities taxable to beneficiaries?’.

For annuities purchased with superannuation money, if a death benefit is paid to a dependant (as defined in law), for example a spouse or child under 18, it will be paid tax-free. However, if paid to a non-dependant, for example adult children, they may have some tax payable.

Find out more about tax on super death benefits.

For annuities purchased with money from your savings outside superannuation , death benefits may have some tax payable. Challenger provides a PAYG statement which has all the details you need to do your tax return as a beneficiary.

Is an annuity right for me?

When determining whether an annuity is right for you, it may help to focus on what your retirement goals are in more concrete terms. For example, working out how much your basic expenses are, how much you will need for a more comfortable lifestyle, if the Age Pension will be enough or whether you need an additional source of income to meet these goals.

If you value the security of a regular income for a fixed term or for the rest of your life, then an annuity could be a suitable investment option for you. In all cases, we recommend you speak to a financial adviser.

Next page > The retirement income quiz