Episode Details

Even though its compulsory to invest money in superannuation, many people do not understand their options once they retire.

This blog provides a summary. However, of course, everyone’s situation is different. Some super funds have different rules and there may be exceptions to some rules, so it’s important you receive personalised advice from an independent financial advisor.

When can you access your super?

The rules that govern when you can access super are contained in the SIS Act and they are called the ‘conditions of release’. There are three ways you can access your super benefit:

1. You have reached your preservation age, which is age 60 for most people (or sooner if you were born prior to 1 July 1964), you have ceased employment and have no intentions of becoming reemployed in the future;

2. If you have reached your preservation age but are younger than 65 and still working, you are able to commence a Transition-to-Retirement Income Stream (TRIS) pension; or

3. You are 65 years of age, regardless of employment status.

These minimum rules apply to all super funds. Super funds are permitted to impose tougher rules than outlined above, so it’s important to check with your super fund.

You have two options

When you retire you generally have two options:

1. Withdraw your full super balance as a lump sum; or

2. Start an income stream pension.

If you are a member of a defined benefit fund, you may have additional options such as commencing an indexed lifetime pension.

If you opt to take your benefit as a lump sum, some of your benefit (i.e. the “taxable – untaxed element”) may be taxed at a rate of up to 17% and the “taxable – taxed element” will be tax-free.

Given the tax advantages of leaving your money in super (outlined below), most people are much better off to opt to start an income stream pension.

Consequences of starting a pension

You can start a pension by rolling over your accumulation account into a pension account. You can roll over up to $1.7 million into a pension account (this is a lifetime cap – called the transfer balance cap). Any account balance that exceeds $1.7 million must be retained in your accumulation account.

Pension super accounts attract a zero-tax rate. That means you do not pay any tax on any investment income or capital gains that your super balance generates.

If you commence a pension, you must withdraw a minimum pension amount, which is based on your age. For example, its 4% of your super balance at the beginning of the financial year if you are younger than 65, or 5% if you are aged between 65 and 74. There is no maximum i.e. you can withdraw as much as you like from super each year. Again, typically, the goal is to preserve your super balance as much as possible as it’s a zero-tax environment.

All income that you receive personally from an income stream pension is tax-free if you are 60 years or older i.e. it does not attract any personal income tax.

If you withdraw money (pension) from super but don’t spend it i.e. its more than you need, you may be able to put it back into super via making a non-concessional contribution. If