An account-based pension allows Australians to start drawing their superannuation as a regular income stream to support their retirement lifestyle. There are often a range of options when it comes to accessing your superannuation at retirement, whether as a lump sum or as an income stream, and it’s important to consider the implications of both.
In this week’s article we’ll explore how an account-based pension works and why you should consider how it might form part of your retirement strategy.
Why should we pay attention to superannuation at all?
Australia’s superannuation system is arguably one of the most tax-efficient retirement savings vehicles that we have access to as Australians, as well as one of the more advanced pension systems worldwide. For anyone considering retiring in Australia, whether you’re currently an Aussie expat or resident, superannuation will often form an important element of your financial plan. There have been a number of changes to areas such as contribution caps, pension limits and transfer caps, so it’s important that you stay abreast of any changes that impact you and your strategy.
If you’re an Australian expat currently, it’s also important to consider how your offshore investment strategies may work in combination with your superannuation, as well as how they’ll be treated when you do return home.
Let’s explore how an account-based pension can work for you
When you decide to retire, and wish to start drawing a regular income from your retirement savings, the account-based pension implementation commences. To start with, a lump sum of your superannuation is transferred from the ‘accumulation account into an account-based pension account. It’s important to understand here what your investment options are when you do convert your superannuation into a pension account, as some may impose restrictions. This transfer into your pension account can be carried out once you’ve reached your preservation age.
The preservation ages are based on the key dates, which are based on your date of birth, and outlined in the table below:
|Date of Birth||Preservation Age|
|Before 1 July 1960||55|
|1 July 1960 – 30 June 1961||56|
|1 July 1961 – 30 June 1962||57|
|1 July 1962 – 30 June 1963||58|
|1 July 1963 – 30 June 1964||59|
|From 1 July 1964||60|
It’s important to note here that you must have reached your preservation age in addition to also having met a ‘condition of release’. This requirements must be met in order for you to commence your account-based pension. A common example of this is deciding to fully retire after having reached your preservation age.
How much income can I draw from my super fund?
There are minimum amounts to be withdrawn each year from your account-based pension, which are based on your age. These limits are outlined in the following table:
|Age||Minimum annual payment as a
% of account balance
|Under age 65||4.00%|
|65 – 74||5.00%|
|75 – 79||6.00%|
|80 – 84||7.00%|
|85 – 89||9.00%|
|90 – 94||11.00%|
|95 or more||14.00%|
There isn’t a maximum limit that can be withdrawn each year when you are retired, however if you are still working and have implemented, or are considering implementing a transition to retirement strategy, it’s important that you understand the limits that would apply in this circumstance.
How is this strategy tax-efficient?
Once you’ve reached 60, your account-based pension income stream in addition to other lump sum withdrawals, are generally paid to you on a tax-free basis. This includes any dividends paid and realised capital gains within your account-based pension. It’s also important to consider the benefits of such items as franking credits that are attached to shares held within your superannuation account.
Your income isn’t necessarily guaranteed for life
It’s important to recognise that in most cases, your account-based pension account will remain exposed to capital markets depending on your investments and overall level of risk. There are certain products such as lifetime annuities, rarely utilised these days given the high fees that are often attached, that can create a guaranteed income, however it’s important to consider whether this is right for you.
When considering your retirement investment strategy, sit down with your trusted financial planner and explore your options to ensure that you can generate the right level of income to live the ideal lifestyle. The earlier you start planning for this goal, the easier it’s going to be to reach.
To your financial success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
To learn more about how we may be able to help you, please contact us:
✆ +65 8282 5702
To discuss how these changes affect you, click here to book a complimentary consultation: http://bit.ly/Book_ApptNow
General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.