Although it is true that a majority of the annuities in Australia are qualified, they are still subject to the Australian Qualification (QA) Act and the Government’s restrictions on annuities. They are also regulated by the Australian Securities and Investments Commission (ASIC).
The Australian Qualification QA Act is designed to protect investors from financial fraud and ensure that financial products are of a standard to which they are subject. The Act goes on to protect consumers from financial products that have been designed to make them lose money and for which they don’t have the funds to pay back the principal to the seller. This is because you don’t know if that product is going to fail in the long run.
ASIC, an agency that looks after the financial services industry, has a very vague definition of financial products. For instance, ASIC defines a qualified annuity as one that is “clearly structured with a provision for the payment of a specified lump sum amount at the end of a specified period of time.
The problem is that the people who are selling these products (like ASIC and others) might not know what a lump sum is and what a specified period of time is. For example, a client who is selling a non qualified annuity needs to see a prospectus which does not explain the details of how to calculate the lump sum payment. ASIC’s definition of qualified annuity states that it is a “defined amount of principal repayable in lump sum”.
There is a big debate in the annuity world over this point. Some people think it is a good idea to explain all this and explain how to calculate the lump sum payments (and thus the amount of principal that can be repaid). Others think that it’s a bad idea, since it can be confusing for the prospect. It’s definitely a good idea or a bad idea, but we can’t really tell for sure without talking to the person selling the annuity.
Qualified annuities have a defined amount of principal repayable in lump sum. There are a number of different types of annuities, with all the different options and different amounts payable. Its best to check out the specific type of annuity you want to buy before you sign up for that type.
Annuities can also be purchased with a non-qualified lump sum. Non qualified annuities generally have a lower interest rate, so it’s a more affordable way to buy them. Qualified annuities are generally higher in the interest rate, which is why they are generally preferred.
The difference between the two types of annuities is the interest rate. Qualified annuities are typically lower in the interest rate because of the low risk associated with them. Non qualified annuities have a higher interest rate because of the more extensive and lower risk of annuities.
With qualified annuities, you can generally expect a 3% to 8% return. With non qualified annuities, you can expect a higher interest rate, but you would likely incur a substantial penalty for not saving to get the higher rate. The premium is typically based on the amount of money you put into the annuity in the past, and you can expect to pay an annual penalty of 3% in the year you start paying into the annuity if you decide to stop saving.