The new Transfer Balance Cap has changed some importance features of super pensions. Whether you have an existing pension or planning to access your super in the near future, now is a good time to review your overall superannuation position.
When can I access my super?
You can access your super once you have met a ‘condition of release’. This can be a little confusing as the rules around access are linked to your age and employment status:
|Age||Condition of Release||Pension Type|
|Under 55||Total and permanent disability||Account Based Pension|
|55 – 64||Preservation age (but still working)
Preservation age (but permanently retired)
|Transition to Retirement Income Stream
Account Based Pension
|60 – 64||Ceased current employment arrangement, or
Account Based Pension
|65+||Attaining Age 65||Account Based Pension|
What is my ‘preservation age’?
Your preservation age is the minimum age needed to access your super (other than total and permanent disablement). Historically, this was set at Age 55, but now we are moving to Age 60 via a transition period based on the below table:
|Preservation Age||Date of Birth|
|55||Pre 1 July 1960|
|56||1 Jul 1960 – 30 Jun 1961|
|57||1 Jul 1961 – 30 Jun 1962|
|58||1 Jul 1962 – 30 Jun 1963|
|59||1 Jul 1963 – 30 June 1964|
|60||Post 1 Jul 1964|
What type of pensions are available?
The two most common pensions available are the Account Based Pension (“ABP”) and the Transition to Retirement Income Stream (“TRIS”). These pensions are based on your super account balance and can offer a flexible range of draw down options to suit your needs.
It is important to remember that there is no guarantee that your pension will last as its dependent on the underlying performance of the super investments and the amounts you draw down over time.
- Account Based Pension
You can only commence an ABP if you have met a full condition of release. You need to draw down at least the minimum pension level each year, which is calculated as a age-base percentage of your account balance at commencement and then each subsequent 1 July.
One advantage of the ABP is there is no maximum limit (other than your account balance) – so you are free to take as much as you want, either as pension payments, lump sum withdrawals or a combination of both.
ABPs are ‘retirement phase pensions’ and the commencing value is measured against your Transfer Balance Cap (which is $1.6 million). If the total commencement value of your ABP is greater than your Transfer Balance Cap, you will have to move the excess amount (plus a penalty tax) back into accumulation phase, or withdraw it as a lump sum. The income and capital gains on investments used to support retirement phase pensions are tax-exempt.
Once you reach Age 60, your ABP is totally tax-free to you. However, if you’re under Age 60, the taxable proportion of the pension is taxed at your marginal tax rate less a 15% tax offset.
- Transition to Retirement Income Stream
A TRIS is similar to an ABP with the minimum 4% pension level until Age 65. However, the maximum pension level is capped at 10% of your account balance. The minimum & maximum levels are calculated as at commencement and then each subsequent 1 July.
The main benefit of a TRIS is that it can be started from your preservation age without needing to permanently retire. Once you satisfy a further condition of release you can usually convert your TRIS into an ABP (subject to your super fund rules).
TRISs are not ‘retirement phase pensions’, therefore are measured against your Transfer Balance Cap, accordingly, the income and capital gains on investments that are used to support the TRIS are taxed at 15%.
If you are between your preservation age and Age 60, the taxable component of a TRIS is taxed at your marginal tax rate less a 15% tax offset. However, once you reach Age 60, your TRIS is totally tax-free.
Calculating your minimum pension
The minimum pension you must receive for either pension type is an age-based percentage of your super account balance. The account balance is calculated at commencement and then each subsequent 1 July. If you commence a pension during the financial year, the minimum pension is pro-rated.
|Age||Minimum % Withdrawal|
|65 – 74||5%|
|75 – 79||6%|
|80 – 84||7%|
|85 – 89||8%|
|90 – 94||11%|
What happens if you under pay your pension?
If your SMSF doesn’t pay at least the minimum pension payment for a particular financial year, your pension is deemed to have ceased. There are significant tax implications for this with your SMSF not being eligible to claim the tax exemption on all income and capital gains generated by the pension assets.
Lump sum benefit payments
An alternative to commencing a pension, is accessing your super via lump sum benefit payment. You can access lump sum benefit payments when you have met a full condition of release.
Lump sum benefit payments can be beneficial if you do not need a regular income stream. Generally, there is no minimum or maximum amount you need to receive (subject to your super fund rules).
Lump sum benefit payments from your accumulation account do not count towards your Transfer Balance Cap. However, a lump sum from your existing ABP will reduce the amount counted towards your Transfer Balance Cap. There are some strategic planning opportunities where you have multiple super accounts in accumulation and pension phase, so seek advice first before withdrawing any super.
If you are between your preservation age and Age 60, the taxable component of a lump sum benefit payment is tax-free up to the low rate cap of $200,000 (* indexed annually by ATO). The low rate cap amount is a lifetime cap and reduced by any amount previously applied amounts. However, once you reach Age 60 all lump sum benefit payments are tax-free.
Before accessing your super, the first place to check is your SMSF trust deed (or external super fund provider) on any specific rules and forms to complete. It is very important that any super payments have been correct characterised and documented as there can be significant taxation and compliance implications both at a personal (member) level and at the Trustee/SMSF level.
We also strongly recommend that you seek professional advice. Jason is able to provide you with personalised financial advice through his Australian Financial Services License with Three Chairs Financial Services.
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The information contained in this article is general in nature and does not take into account your personal situation or objectives. You should not act on this information in any way before seeking professional advice.