Moving from super to pension...
For many Australians, the working years are focused on building superannuation savings, while retirement is the time to begin using those funds. A common question that arises is: How do I start accessing my super when I stop working—or even before?
This guide covers the basics, including eligibility rules for accessing your super and how to switch from a super accumulation account to an account-based pension…
When Can I Access My Super?
To legally access your super, you must meet a condition of release after turning 60 years old. This can happen in two ways:
Retirement – If you permanently stop working, you can withdraw your super.
Transition to Retirement Income Stream (TRIS) – If you continue working, you can start a TRIS, allowing you to reduce work hours while supplementing your income with pension payments.
In either scenario, you have three options:
Start a pension income stream (regular withdrawals).
Make a lump sum withdrawal.
Use a combination of both.
How Do I Start a Pension Account?
To begin drawing from your super, you’ll need to roll over some or all of your funds from your accumulation account into a new pension account. The key considerations for starting a Pension Account are…
If you start a TRIS, your employer will still pay compulsory super guarantee contributions into your accumulation account, taxed at 15%.
Earnings on investments in a pre-retirement pension (TRIS) are also taxed at 15%.
Once in full retirement, investment earnings and pension withdrawals are tax-free.
Most super funds offer pension account options similar to accumulation accounts. If you have a self-managed super fund (SMSF), consult your accountant or financial advisor to facilitate the rollover.
How to Roll Over Your Super to a Pension Account…
Each super fund has its own process, but typically, you’ll need to:
Submit a request to your super fund (usually by filling out a form).
Specify how much super you want to transfer.
Nominate the pension account to receive the funds.
Once your funds are in a pension account, you can start making withdrawals, either as a lump sum or regular income.
The maximum amount that can be transferred from super to a tax-free pension account is $1.9 million. If you exceed this cap, the excess:
Can remain in your super account and be taxed at up to 15% on earnings.
Can be withdrawn as a lump sum.
The Australian Tax Office (ATO) tracks transfer balances and applies an excess transfer balance tax if you exceed the limit.
Tax Considerations in Pension Mode…
Once you’re aged 60 or over and fully retired:
Investment earnings in your pension account are tax-free.
Pension withdrawals are tax-free.
Profits from investments sold within a pension account are completely exempt from capital gains tax (CGT).
Minimum Pension Withdrawal Requirements…
After transferring funds to an account-based pension, you must withdraw a minimum amount each financial year, based on a percentage of your balance and your age.
For new pensions, the minimum withdrawal is pro-rated from the start date to the end of the financial year.
TRIS Withdrawal Limits (if under 65)…
Minimum: 4% of your balance.
Maximum: 10% of your balance.
For fully retired individuals, the required minimum withdrawal rates increase with age, as set by the ATO.
This article provides an overview of accessing your super in retirement, but personal circumstances vary. Consulting a financial advisor can help tailor a strategy that suits your needs.
Rick Maggi CFP, Financial Advisor/Planner Perth, Westmount Financial