A lot of financial planners reckon these are among the best things around. They're products that provide retirees with a regular income. One of their big attractions, says Robert Lipman, director of Investec Private Advisers, is that you can defer the lump-sum tax you'd normally pay on your super benefit if you roll the money over into an allocated pension. Instead, you pay tax on the income you receive from the pension each year - although there's a 15 per cent tax rebate on that income if your super benefit does not exceed the lump sum Reasonable Benefit Limit (RBL) of $506,000. Also, the earnings of allocated pensions are tax free.

So by putting my super into one of these I defer tax on my payout and get a tax break on my income?

That's about it. Another cherry is that any "undeducted" money that went into your super fund (contributions that didn't attract a tax deduction) forms the "deductible amount" of your allocated pension. This is an annual amount which you can withdraw from the pension tax-free.

A popular strategy is for investors to make large undeducted contributions to super shortly before retirement to maximise this tax-free amount.

So why wouldn't I use an allocated pension?

There are rules to consider. If you are one of those fortunate enough to have a super benefit higher than the lump-sum RBL, using an allocated pension doesn't entitle you to the higher pension RBL of $1.012 million. Any super benefits over $506,000 will be deemed to be "excessive".

Lipman says that's not the end of the world. You can defer the 48.5 per cent tax you'd normally pay on that excessive component of your payout by putting your money into an allocated pension, but the portion of your allocated pension bought with excessive money wouldn't carry the 15 per cent tax rebate it enjoyed when paid to you as income.

By contrast, if you invested half of your super payout in a "complying pension" (which locks you in for 15 years or life expectancy) you could use the pension RBL. Complying pensions are also exempt from the Social Security assets test.

Lipman says the tax advantages of allocated pensions can reduce as you get older. This is because the government sets minimum and maximum limits on the amount of income you can take from your pension each year. When you're younger, those limits are relatively low - a 60-year-old has to withdraw just 5.6 per cent of his or her investment, a 65-year-old 6.4 per cent.

But at about age 75, says Lipman, the minimum withdrawals start to exceed the likely earnings of the fund and you start drawing down your capital. By the time you are 80, your minimum withdrawal is 10.99 per cent of your money; by 85 it's 14 per cent.

Your income increases substantially, and though you still get the 15 per cent tax rebate, your deductible amount is a set figure and it's likely that you'll be paying more tax on your income. If you think you'll live to a ripe old age, he says, there may be a more tax-effective option.

Lipman says allocated pensions may also be questionable for people with small super payouts who would be constrained by the maximum withdrawal limits. See a financial planner.