Some products and tax arrangements available in retirement are different to those available when you are working.
So there may be changes to how you receive income and pay tax.
- When can you access your super?
- What tax do you pay if you take your super as a lump sum?
- What products are available should you want to turn your super into a regular income stream?
- How long will your money last? How much will you need to provide the income you want in retirement?
When can you access your super?
Most people will access their super when they retire. Contributions paid into superannuation since 1 July 1999, and any subsequent investment returns, are generally only available to be withdrawn as cash once you permanently retire after you have reached your preservation age.
You can also access your preserved super benefit if you leave a job after age 60, or if you are still working when you reach age 65.
The Commonwealth Government is gradually increasing the preservation age from 55 to 60. Find out your preservation age.
- Some members have some super they can access prior to retirement. It may have been rolled in from another fund or be contributions paid prior to 1 July 1999 (when preservation rules changed). Your benefit statement will show if you have funds that can be accessed under these circumstances.
- Your super can also be accessed if you die or are totally and permanently disabled. And you may be able to apply to access your super on compassionate grounds or if you are in financial hardship.
- The transition to retirement option was introduced for QSuper members from July 2006. This allows members who have reached their preservation age to access their superannuation benefit while still working, and provides them with the flexibility to adjust their income to suit changing work patterns and lifestyle needs. You don't even have to change your current job or working hours.
You can start using the transition to retirement option by transferring all or part of your super benefit (a minimum of $30,000 is required) into a pension account, and drawing a pension to supplement your income.
Taking your super as a lump sum
Some people choose to retain their super in a superannuation fund. This allows them to continue to have access to lump sum withdrawals and still being able to choose from a range of investment options.
If you are aged 60 or over, your super can be drawn tax-free. If you are under 60, tax may be paid when a withdrawal is made.
Calculating the tax you will pay on your benefit is simple, because your superannuation lump sum is proportioned between two components:
- the tax-free component on which no tax is payable, and
- the taxable component, which is usually concessionally taxed based on your age, and is tax-free to those 60 and over.
Sources of retirement income
Retirees generally have three possible sources of income.
These can include:
- income from the Commonwealth Government (like the Centrelink Age Pension)
- income from super
- income from their own investments or savings.
Some retirees use a combination of these options to provide a retirement income. If you work part-time or qualify for a part Centrelink pension, it can extend the length of time your other investments will last in retirement.
Some retirees choose to convert their super into a regular retirement income stream. For some, this can have tax advantages over withdrawing a lump sum. Alternatively, it may allow them greater access to Centrelink benefits. Other people just feel more secure having a regular income.
Income stream products
While some people choose to take their super as a lump sum, the Commonwealth Government encourages people to take their super as an income stream in retirement. Consequently there are tax concessions for some retirement income products including both account based and non account based pensions. As well as being tax effective, these products may also be treated favourably when assessing eligibility for Centrelink benefits.
These products all have similarities, but also some major differences. You need to understand the conditions of the product you choose, as you may not be able to change your mind later.
The similarities between the different products include:
- they all pay you a regular income, just like salary. Most are paid monthly into your bank account (they can often be paid quarterly, half yearly, or annually if you want).
- if you're 60 or over, the income you receive is paid to you tax-free. If you're under 60, normal marginal tax rates apply, but you'll usually receive a tax offset of 15%. This means you may receive income of up to $41,000 before paying tax on that income1.
- if you're applying for the Age Pension, the income you receive from an account based pension is treated concessionally in the Centrelink income test.
- you can usually arrange for the pension to continue to be paid to your spouse when you die.
So what makes them different?
An account based pension provides a flexible income stream. It allows you to choose the income you receive each year (within legislated limits), and if you’re permanently retired and over your preservation age, it allows lump sum withdrawals at any time. You choose how your money is invested and you can close your account and be paid your remaining account balance at any time. On your death, the balance may be paid as a pension to your spouse, or as a lump sum to your estate.
While an account based pension is flexible, you need to ensure you don’t spend your money too quickly. The pension only continues until your money runs out.
If you’re applying for the Age Pension, the whole amount in your account based pension account counts towards the Centrelink assets test.
Non-account based pensions may be paid for life or for a fixed term and generally the level of income cannot be adjusted.
You can use the Pension account calculator to explore income options and see how long your pension may last.
Download the QSuper Pension account product disclosure statement (pdf) for more info.
Age Pension
In Australia, the Commonwealth Government provides a range of payments and benefits as a type of financial safety net. One of these benefits is the Centrelink Age Pension. To qualify for the Age Pension, your assets and income must be under certain limits. This is designed to ensure the pension is targeted to those who need it most.
At 1 July 2009, the maximum Age Pension was $14,856 a year for a single person and $24,815 for a couple. While this may appear difficult to live off, some Australians combine this pension (or part pension) with income from either part-time employment, superannuation, or other investments. Again, it's often careful planning that allows people to maximise the resources available to them.
Men can access the Age Pension at age 65 and for women it is available between age 60 and 65. The qualification age for women is gradually increasing to age 65.
- Age Pensioners qualify for the pensioner concession card. It provides reduced prescription costs, concessions on vehicle and boat registrations, phone and electricity bills, rates and other utilities.
- Even if you do not qualify for the Age Pension you may still be able to get the Commonwealth Seniors Health Card. This card is for self-funded retirees and provides lower prescription costs as well as other benefits. You may also receive concessions by using the seniors card issued by state governments.
- Not everyone qualifies for the Age Pension. It is means tested using an income test and assets test. Both tests are applied and the test that pays the lower Age Pension is used. Details of assets and income test limits can be found on the Centrelink website.
- Centrelink does not count assets and income in the usual way. For instance, your own house does not count as an asset and some of the income paid from retirement income streams is not counted.
- If you are too young for the Age Pension, you may qualify for other Centrelink payments. The asset and income test thresholds and other Centrelink rules may change, so the best place to get up-to-date information regarding Centrelink benefits is from their website (www.centrelink.gov.au).