Pension Commencement

We understand that there’s no such thing as a one-size-fits-all pension. Let’s talk about your options.

SMSF pensions

Self-managed super funds (SMSF), can provide you with pension or lump sum benefits in retirement. Retirement is a condition of super release if you have reached your preservation age. Your preservation age is between 55 and 60, depending on your date of birth. Remember that super benefits are tax-free if you’re over the age of 60.

If you decide to start a super pension income stream, you will need to transfer funds from your accumulation account to your pension account in order to establish your pension – the earnings on these funds are tax-free. You can only transfer up to the transfer balance cap (up to $1.6 million) into your retirement account. You will be required to withdraw a minimum percentage of your retirement account balance each year. This varies, depending on your age.

Transition-to-retirement (TTR) pensions can be commenced once you have reached your preservation age while you’re still working. However, it is worth noting that the earnings on funds that support TTR pensions are still taxed at 15%, unlike the funds that support your super pension are if you have retired.

Account-based pensions

An account-based pension is like a personal retirement income account operating in a superannuation fund. You receive regular income payments, while at the same time your account may earn investment income. Any investment income earned in pension phase is generally tax free. Bear in mind that before you can start to receive a pension with your super benefits, you must meet a condition of release, the most common of which include:

  • reaching your preservation age
  • permanently retiring after reaching preservation age
  • reaching age 65, or
  • permanent incapacity.

Transition to retirement pension (TTR, also called TRIP or TRIS)

If you are under 65 and not ready to fully retire yet, but would like to access some of your super, a TTR pension may be the answer for you.

As they are not retirement products, they don’t enjoy the same tax benefits as pensions in retirement phase.  Earnings on investments are taxed at up to 15% just as they are in a super accumulation account. You can only withdraw a maximum of 10% of your TTR account balance each year and payments are tax-free if you are over 60.  If you are younger than 60, then the taxable portion of your pension income will be taxed at your marginal tax rate, less a 15% tax offset.

Benefits of commencing an Account Based Pension (ABP)

The main benefit of commencing an ABP in your SMSF is that earnings from assets supporting the ABP are tax exempt (subject to the Transfer Balance Cap). The ABP has many advantages:

  • You never pay tax on your investment earnings & realised capital gains in the ABP account (e.g. interest and dividends).
  • You can access any level of income from your SMSF subject to an aged based minimum amount.
  • The Pension income you access is tax free if you are aged above 60.
  • The Pension income you access is concessionally taxed if you are aged between preservation age and 59.
  • You do not have to change your SMSF investments when you start a Pension.

Let’s plan for your future together. Talk to us today to find the right pension for you.

SMSF Planning for retirement

SMSF – Retirement and conditions of release