Market Linked Income Streams (MLIS) are a unique form of fixed-term retirement income stream derived from accumulated superannuation benefits. While these products were initially designed to offer pension and Centrelink advantages, they have since become legacy products with limited availability. Understanding their structure, benefits, and limitations can help retirees make informed financial decisions.
What is a Market Linked Income Stream (MLIS)?
An MLIS is a pension product that provides regular income payments over a fixed term, generally aligned with a recipient’s life expectancy. Unlike traditional annuities, MLIS investments are market-driven, meaning returns and income payments can fluctuate based on asset performance. These products were originally introduced on 1 July 2004 and became legacy products after 20 September 2007, though some providers, including SMSFs, still offer MLIS options.
Key Features of MLIS
- Market Exposure: Investments can include shares, property, and fixed interest.
- Fixed-Term Structure: Payments are made over a specific duration, usually aligned with life expectancy.
- Legacy Product: New MLIS accounts are generally not available, except under specific circumstances.
- No Lump Sum Withdrawals: MLIS funds cannot be accessed as a cash lump sum, except in limited conditions.
- Centrelink Benefits: MLIS products historically provided Centrelink asset test exemptions and pension advantages.
How Are MLIS Payments Calculated?
Annual income payments from an MLIS are determined by multiplying the account balance at the start of the year by a pension payment factor based on the remaining term. This ensures that the balance is fully drawn down by the end of the fixed term. Since 1 January 2006, some providers have allowed recipients to adjust payments by plus or minus 10%.
Taxation and Transfer Balance Cap
MLIS payments are classified as retirement-phase income streams and are tax-free for recipients over age 60. For those under 60, a portion of payments may be subject to marginal tax rates, though tax offsets may apply. MLIS accounts also count towards an individual’s Transfer Balance Cap (TBC), with older MLIS products calculated based on annual income x remaining term, while those commenced after 1 July 2017 are valued at the original purchase price.
MLIS Commutation and Access to Capital
An MLIS cannot generally be commuted to a cash lump sum or transferred back into an accumulation account. However, full commutation is possible in limited cases, such as:
- Rolling over into a new MLIS.
- Adjusting the payment term to modify income streams.
- Complying with a Transfer Balance Cap commutation authority.
Options on Death
When an MLIS recipient passes away, several estate planning options are available:
- No Nomination: The provider determines how the balance is distributed (e.g., paid as a lump sum to the estate).
- Reversionary Beneficiary: The MLIS automatically continues to a spouse until the balance is exhausted or the term ends.
- Nominated Beneficiary: A nominated dependent may receive the balance as a lump sum or commence a new pension (if eligible).
Final Thoughts
Market Linked Income Streams remain a niche but important component of some retirees’ financial plans. While they offer structured income and Centrelink benefits, their fixed-term nature and restrictions require careful consideration. Individuals with an existing MLIS should review their options regularly and seek professional advice to ensure alignment with their long-term retirement strategy.