Upon satisfying a ‘condition of release’ like retirement and you have reached the preservation age, many superannuation funds (though not all) offer you the ability to commence an income stream with the balance of your superannuation funds known as an Account Based Pension.
These types of income streams are granted significant tax concessions which make pension payments from these income streams an attractive option.
If you commence an account based pension between the ages of 55 and 60, the taxable portion of the income stream will be taxed at your marginal tax rate. You will be able to claim a 15% tax offset on this portion.
Income received from an Account Based Pension after reaching age 60 will be non-assessable and tax-free. This provides an extremely tax effective means of providing an income in retirement.
Account Based Pensions have a minimum payment limit that applies each year, but no maximum limit.
The minimum level is set as a percentage of the balance of your fund and is defined by your age at the start of each financial year or upon commencement of the pension.
These minimum amounts are legislated as follows:
|Age||Percentage of Balance|
|65 – 74||5%|
|75 – 79||6%|
|80 – 84||7%|
|85 – 89||9%|
|90 – 94||11%|
|95 or more||14%|
With an account based pension, there are two important factors which determine how long your pension income will last:
- Your investment earnings, which are determined by your investment strategy
- Your drawdown level, which is the level of pension payments you decide to take to ensure that your capital will last.
Drawings from the Account Based Pension can be made both via a regular pension and lump sum withdrawals. An Account Based Pension gives you the option to make lump sum withdrawals at any time, with regular pension payments being made until your account is reduced to nil or until the date of your death. Further, you can elect to automatically index your pension payment amount to the Consumer Price Index (CPI) or another discretionary fixed percentage each year.