Non Commutable Allocated Pension

A Non Commutable Allocated Pension (NCAP) is an income stream that is commenced using your superannuation savings.

It is Non-Commutable because only pension payments are able to be received from this type of income stream. You are unable to make lump sum withdrawals (commutations) from the capital value of the pension.

Don’t let this confuse you

At the risk of confusing the matter further, I will try to elaborate on this point.

When I say that you are unable to make lump sum withdrawals from the capital value of the pension, I do not mean that you are limited to drawing only the income generated from your superannuation investments (i.e. bank interest, share dividends, rental income, managed fund distributions, etc.). The capital value of your investments is different to the capital value of the pension.

Why would you commence a Non Commutable Allocated Pension?

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Non Commutable Allocated Pension

A Non Commutable Pension is the only type of pension that you are able to commence if you wish to commence a Transition to Retirement strategy. This is the type of strategy that you would employ if you have reached your Preservation Age, yet under age 65 and continuing to work.

A Non Commutable Allocated Pension requires you to draw an income of between 4% and 10% of the account balance, as calculated on 1 July of each year, or at the commencement date of the pension (pro-rata). Here’s an example of how a Non-Commutable Pension works.

What’s the difference between a Non Commutable Allocated Pension and an ordinary Allocated Pension

There are only two differences between these types of pensions:

  1. Lump sum withdrawals from the capital value of a Non Commutable Pension are not permitted, whereas they are permitted with an ordinary Allocated Pension
  2. The maximum pension income that can be drawn from an ordinary Allocated Pension is not limited to 10% p.a. In fact, the maximum income that you can withdraw from an Allocated Pension is not limited at all – you can draw 100% of your balance as a pension payment in any year.

Everything else remains the same between these two types of pensions – they both require a minimum pension income to be drawn each year, all investment earnings are received tax free, etc. etc.

All in all, a Non Commutable Allocated Pension is the more technical term for a TTR Pension/Transition to Retirement Pension/Transition to Retirement Income Stream.

(Note: Allocated Pensions have since been replaced by Account Based Pensions. Therefore now referred to as Non Commutable Account Based Pensions)

Account Based Pensions and Non-Commutable Allocated Pensions both also receive a deductible amount, which reduces the income for Centrelink purposes; provided the NCAP commenced prior to 1 January 2015. The Centrelink Deductible Amount formula can be found here.

What type of account do I need to commence a NCAP?

You are able to commence a Non-Commutable Pension if you have an accumulation account (and have reached your Preservation Age).

Accumulation accounts are generally available within the following types of superannuation accounts:

More information on these types of accounts can be found in my explanation of ‘What is Superannuation?’.

If you would like anything clarified or have any further questions in relation to Non Commutable Allocated Pensions or any other superannuation topics, please do not hesitate to leave a comment.

Chris Strano

Chris Strano created SuperGuy to help the average punter navigate through the complex and ever-changing super rules. It has since become one of Australia's leading digital super resources. Subscribe to SuperGuy's YouTube channel for the latest strategies to boost your super savings. https://www.youtube.com/c/superguyau

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14 Comments

  1. Jim Neale

    In 2010/11, aged 59 I was on leave without pay due to a shoulder operation and during this period I was granted a Low Income Health Care Card from Centrelink as I was being payed a Non Commutable Allocated Pension from my Super Fund. I’m now in the situation of having had my other shoulder operated on, May 2013 and this time I was covered by Workers Comp and as the Insurance Company is now no longer covering me as the Op and the Rehab were successful, I am now, again being payed an NCAP as my employer took the option of terminating my employment last November. I’m presently searching for employment. Question. Can you advise if I am entitled to the Health Care Card as before? I’ve looked this up through the Centrelink web site and an allocated pension is seen as an income. Is Commutable and Non Commutable looked at in a different light as I assume they were three years ago? I spoke to a Centrelink Rep yesterday but couldn’t get an answer. The web site doesn’t differentiate. Cheers.

    Reply
    • Chris Strano

      G’day Jim!
      Thanks for your question. As far as I am aware, there is no difference between the assessment for an ordinary allocated pension and a non-commutable allocated pension from a Centrelink perspective. As you have found out, pension income is assessed. However, generally a ‘Centrelink Deductible Amount‘ will be used to reduce the amount of income that is actually assessed.This means that some or all of the pension income that you receive will not be counted for Centrelink assessment purposes (this should apply for Low Income Health Care Card assessment, but I’m not 100% sure). The Deductible Amount is intended to represent your return of capital. What I would suggest is to obtain a ‘Centrelink Schedule’ from your Allocated Pension provider. This is a common one-page document that they can produce that will give Centrelink the ability to calculate your Deductible Amount. At the end of the day, Centrelink will make the call as to whether you are eligible for the LIHC. Check out the Deductible Amount link above, as well as this article. Hope this helps, let me know how you go.
      Regards, Chris

      Reply
  2. Jojy

    Hey just wondering if you can give me more details on commutable pension and how does this work?

    Reply
    • Chris Strano

      Hi jojy
      A commutable pension, as opposed to a non-commutable pension, is simply an ordinary account based pension with no income limit restrictions. Such a pension is usually one that is commenced upon permanent retirement or after age 65 (i.e. a full condition of release has been met). It allows you to withdrawal lump sums from the capital supporting the pension in addition to pension payments.

      Reply
  3. stephen smith

    Chris, radio news report 28/10 that government are going to “look at” Transition to retirement for middle to high income earners why and what are they likely to change, thanks

    Reply
    • Chris Strano

      Hi Stephen
      There is always speculation around changes to superannuation. Discussion on super for mid-high income earners generally revolves around contribution limits and contributions tax. This is because the system is trying to achieve equitable outcomes for all Australians. It is argued that the current contribution limits favour higher earners because the difference between their MTR and contributions tax of 15% is greater than that of a lower income earner – thereby providing a greater % tax benefit. For example, contributions tax for those earning over $300k has effectively been increased to 30% to limit the tax benefit. Maybe this income level could be reduced??? Maybe the concessional contribution cap could be further lowered?? It’s really anyone’s guess….

      Reply
  4. james corbett

    My question is. I turn 65 this year and I have been receiving a non commutable trap since age 55. On achieving age 65 can I get access to a lump sum from my super in its present form or do I have to change it to an account based pension .?

    Reply
    • Chris Strano

      Hi James, yes, it should automatically convert to an ordinary ABP – the cashing restriction is removed

      Reply
  5. AKP

    I commenced my non-commutable pension scheme in December 2010 when iI was just two months short of 60 and chose to draw 10%. I turned 65 and now wished to draw a lump sum from this account. Can this be done? or I am forever tied to this scheme?

    thanks

    Reply
    • Chris Strano

      Once you reach age 65 you have met a full condition of release meaning that you should have full unlimited access to your pension balance – assuming it was a transition to retirement pension – as this pension should automatically convert to an ordinary account based pension. Confirm with the trustee of your super.

      Reply
  6. John Lawrence

    On my retirement, I nominated my then wife to receive my 5 pensions from different companies if I died before her. I have since divorced and re-married, and 4 of the companies have transferred the second beneficiary to my new wife, but one (Aviva) is saying that the policy is ‘non-commutable and non assignable’ and thus my divorce means that no-one can benefit. Incidentally, I did not take out the policy with Aviva, but a company which they have recently taken over. Surely this is indefensible as it removes at least 50% of the risk to themselves, and should either be transferable, or the monthly payment increased to me?

    Reply
    • Chris Strano

      Hi John, you’re right, this sounds odd, but I can see how it would be an issue if the original lifetime pension payment calculations were also based on your previous wife’s age. I can’t comment on the product, but you should see if you can get your hands on both the current and original product disclosure statements (PDS) that were provided to you and sse what can be done. Failing that, I would continue to push your argument with the product provider.

      Reply
  7. Rockin

    Is there any difference between a non-commutable allocated pension/annuity and a non-commutable complying pension/annutiy?

    Reply
    • Chris Strano

      Yes, a non-commutable allocated (account-based) pension is a transition to retirement pension. An annuity is different to this. A complying pension is different again. Basically, the term ‘non-commutable’ means you can only receive income payments and not make lump sum withdrawals from the capital component of the pension/annuity. An allocated pension is defined here. An annuity is defined here. And a complying pension is defined here.

      Reply

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