The accumulation period of an annuity is the phase where you are increasing the cash value of your annuity. After this period is over, your annuity will be either annuitized or cashed out. 
An annuity is an opportunity for you to earn income and set savings over a long-term span. During the accumulation period, you build up your annuity by paying premiums to the insurance company. This period can last years and provide plenty of time for the overall value of the annuity to build. Your annuity also collects interest over this span which can also increase its value. There isn’t a set amount of time for the duration of an accumulation phase — it can vary depending on your specific annuity — but the longer the phase, the greater the worth of your annuity. After the accumulation phase is over, you will either cash out your annuity or annuitize it. This is known as the payout phase since you begin to get money back from your annuity through several payout options. It would be best if you typically did not plan to make withdrawals during the accumulation phase because this is when you build up the value of your annuity for later use. A withdrawal would be counterproductive. If you are planning to purchase an annuity that will have an accumulation phase, consider the following:
According to Forbes, you can steadily add money to your account over time to increase its value in a deferred annuity, then eventually cash out or annuitize your annuity. You will not have an accumulation phase if you have purchased an immediate annuity. In this type of annuity, your contributed money is immediately annuitized, resulting in you starting to receive payments right away. Since your payments begin right away as you contribute money, there is no time or reason for an accumulation phase to occur. This also applies to deferred income annuities.
Last Modified: August 23, 2022 Reading time: 3 minutes Superannuation is a long-term investment vehicle that carries you through two phases of life. There is an accumulation phase followed by a retirement phase, but it’s important to note that these aren’t mutually exclusive. You can have some of your super in an accumulation account and some in a retirement account as you navigate your way between the two. Understanding the difference is important though, as each phase has different tax treatment, rules and potential strategies. In this article we’ll briefly describe the phases and how they differ from one another. The information applies whether you are a member of a self-managed super fund (SMSFs) or a large public fund. Accumulation phaseAccumulation phase, as the name suggests, is where your superannuation savings are held during your working life and left to accumulate for your retirement. When you enter the workforce, you must choose a super fund or accept the default MySuper fund offered by your employer. Your accumulation account with this fund can then accept compulsory Super Guarantee contributions from your employer or business. You can also make personal contributions, directly or via a salary sacrifice arrangement with your employer. All these contributions and the earnings on them during the accumulation phase are locked away – or ‘preserved’ – until you reach your preservation age and retire or you meet another condition of release. Employer and salary sacrifice contributions, and personal contributions for which you claim a tax deduction, are taxed at the concessional superannuation rate of 15% (up to the concessional contributions cap). Non-concessional contributions you make from after-tax income are not taxed going into your super account. All earnings from the investments within your super account are taxed at up to 15% in accumulation phase. However, capital gains on the sale of investments held for longer than 12 months receive a 33% capital gains tax discount, effectively reducing CGT to 10%. The Retirement Income Review (released in November 2020) found franking credits further reduced the effective tax rate for super assets in the accumulation phase to 7%. Retirement phaseRetirement phase (formerly called Pension phase) begins once you have retired or met a condition of release and start withdrawing your super. Confusingly, depending on your age and other circumstances you may still be working full or part-time. Super savings are transferred into the retirement phase when a member commences a super income stream (or pension). There is currently a cap of $1.7 million that can be transferred into the retirement phase (known as the transfer balance cap). Amounts above this cap must remain in accumulation phase. The most common type of super income stream is an account-based pension. Minimum annual withdrawal rules are designed to ensure members use their retirement savings for their intended purpose – to provide income in retirement – rather than as a tax-effective vehicle for the transfer of intergenerational wealth. Pension payments and earnings on assets transferred into the retirement phase to support the pension income stream are generally tax-free. Some or all of an account-based pension can be rolled back (commuted) into accumulation phase where earnings will be taxed at 15%, then used to commence a new pension in future. You can have more than one super pension account at a time. Different rules apply to transition-to-retirement pensions, pensions paid from defined benefit funds and annuity-style pensions that offer income for life. The retirement phase was called the pension phase until 1 July 2017. The name was changed to reflect a change in the tax treatment of transition-to-retirement pensions, which can be started once you reach your preservation age even if you continue working full-time. The earnings on assets supporting these types of pensions are not exempt from tax. There was criticism in the Retirement Income Review that Australia’s retirement system “focuses on the accumulation of savings for retirement, but insufficient attention is given to how people can best use their savings to support their living standards in retirement, such as drawing on their superannuation balances or accessing the equity in their homes”. With the adoption of the Retirement Income Covenant from 1 July 2022 by super funds (but not SMSFs), it is anticipated more funds will offer annuity-style products to ease member concerns about outliving their retirement savings. |
What occurs during the accumulation period?
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