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.
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.
- Over 60 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.
Age | Reduced minimum 2022/23 | Standard minimum 2023/24 and beyond |
Under 65 | 2% | 4% |
65 to 74 | 2.5% | 5% |
75 to 79 | 3% | 6% |
80 to 84 | 3.5% | 7% |
85 to 89 | 4.5% | 9% |
90 to 94 | 5.5% | 11% |
95 or older | 7% | 14% |
Tax payable by the individual on account based pension income
Every withdrawal (income or lump sum or death benefit) from a pension is split into taxable and tax-free components in the same ratio that applied when the pension commenced. The tax on each component depends on the person’s age as shown in the table below:
Age | Component | Taxation Treatment |
Any age | Tax-free | No tax |
Under age 60 | Taxable – taxed element | Marginal tax rate*, less 15% tax |
Taxable – untaxed element | Marginal tax rate* | |
60 or older | Taxable – taxed element | No tax |
Taxable – untaxed element | Marginal tax rate*, less 10% offset |
*Plus medicare levy
Pension commutations
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.
Age | Limit | Max tax rate (%) |
Taxable component – taxed element | ||
60 and over | Non-assessable non-exempt income | 0% |
Preservation age to 59 | First $230,000 (low-rate cap) | 0% |
Balance over $230,000 | 15% | |
Below preservation age | Whole component | 20% |
Taxable component – untaxed element | ||
60 and over | First $1.650 million (untaxed plan cap) | 15% |
Balance over $1.650 million | 45% | |
Preservation age to 59 | First $230,000 (low-rate cap) | 15% |
Over $230,000 and under $1.650 million | 30% | |
Balance over $1.650 million | 45% | |
Below preservation age | First $1.650 million (untaxed plan cap) | 30% |
Balance over $1.650 million | 45% | |
Tax-free component | ||
Any age | All | 0% |
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.
- You must draw at least the minimum pension payment each year. The amount is based on your age and balance.
IMPORTANT INFORMATION REGARDING THIS INFORMATION
This information is of a general nature. It does not consider your personal objectives, needs or situation. It does not represent legal, tax or personal advice and should not be taken as such. If it has been provided to you with a Statement of Advice (SoA), you should rely on the personal advice in the SoA.
Care has been taken to provide up to date and accurate information relating to the subject area however BR Advice Pty Ltd (ABN 30 612 056 523, AFSL 488655), Blue Rock Private Wealth Pty Ltd (ABN 95 166 927 055, AFSL 452733), Blue Rock Private Wealth (Melb) Pty Ltd (ABN 48 652 202 698, ASIC AFS No. 1298365) and their representatives make no representation as to its accuracy or completeness.
Published: September 2022.
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