What is an Account-Based Pension?
When you retire or meet a ‘condition of release’, you can access your superannuation. The most common form of retirement income is an account-based pension. Your superannuation savings move into income phase where you can draw an income to meet your retirement living needs.
How does it work?
- You need to draw an income each year equal to or above the minimum defined in the table below.
- Your balance comes from super money and is generally invested in the market. There is a limit to how much you can rollover to an account-based pension from super.This is known as the Transfer Balance Cap.
- Over60 and your pension is tax free. Over preservation age but under 60 and you receive a 15% tax offset on the taxable portion of your pension payment.
- Different rules apply to pensions from untaxed super funds. Over 60 and you receive a 10%tax offset. Under 60, no tax offset.
You can make withdrawals, known as commutations, from your account-based pension. Tax treatment depends on your age and balance as shown in the table below.
What are the benefits?
- Your balance is accessible at any time.
- You can increase your income payments above the minimum payment.
- Account-based pensions can revert to your spouse and in some instances, a dependent. This allows the pension to continue if you pass away.
- The balance may transfer to your beneficiaries upon death.
- Your pension will be invested, and may benefit from, capital growth and income reinvestment.
What should I be thinking about?
- It doesn’t last forever. How much you draw as an income or lump sum, as well as market performance, will impact the balance and longevity of your pension.
- You cannot add to your pension once it has started. You will need to start another pension or roll your pension back to super and start a new one.
- Minimum payments are pro-rated when the pension commences part way through the financial year. This amount must be paid out of the fund before the pension can be closed or rolled back to super.
- Account-based pensions are considered a financial investment for Centrelink purposes and therefore any income paid is deemed and assessable for means testing.
- Account-based pensions can only be purchased with money from superannuation.