This article is all about superannuation income streams for people over age 60.
It will specifically focus on account based pension (formerly allocated pension) income streams, given that these are the most common forms of superannuation income streams.
An account based pension superannuation income stream is an income stream commenced using savings within a superannuation accumulation account.
A superannuation accumulation account is an account that accepts contributions in the build up towards retirement. Types of contributions may include mandatory employer superannuation guarantee (SG) contributions, salary sacrifice contributions or personal contributions to name a few.
Once a person is ready to draw down on their superannuation savings that have accumulated over time, it is most common for them to start a transition to retirement (TTR) pension, if they are still working, or an account based pension, if they have permanently retired or have reached age 65.
- Access To Super After Age 60
- Can I Access My Super At 60 and Still Work?
- Super Lump Sum Payments Over 60
Superannuation Income Stream Over 60
The two main types of income streams that a person will commence over age 60 are TTR Pensions and Account Based Pensions.
TTR Pension Superannuation Income Stream Over 60
A transition to retirement (TTR) pension is an income stream that can be started using all or some of the savings in a superannuation accumulation account.
The recipient (owner/member) of the income stream would start a TTR pension, as opposed to an account based pension, if they have not yet met a ‘retirement’ superannuation condition of release.
For people over age 60, ‘retirement’ is broadly defined as retiring with no intention of returning to part-time or full-time work; ceasing an employment arrangement after age 60; or reaching age 65. If any of these conditions are met, there is no need to commence a TTR pension, as an account based pension is more flexible and tax-effective.
- Retirement Rules and Definitions
- Establishing Whether Gainful Employment Has Ceased
- Transition to Retirement Pension Over 65
If one of the ‘retirement’ conditions is not met (i.e. the member will continue to work past age 60 in the same role), then a TTR pension will allow limited access to income. The income that must be drawn by a TTR pension recipient is between 4% and 10% of the account balance in any one financial year.
The 4% and 10% thresholds are calculated based on the TTR pension balance on 1 July of each year. If the TTR pension began part way through a financial year, then the income calculated is pro-rata, based on when the TTR Pension commenced.
All of the income received from a TTR Pension by an individual over age 60 is received tax free, apart from the ‘taxable (untaxed)‘ component. Most TTR pension balances will not have a taxable (untaxed) component. The TTR Pension provider or administrator/accountant of a self managed superannuation fund (SMSF) will have information on the tax components of a TTR Pension balance.
Up until 1 July 2017, all earnings (including capital gains) are received tax free within a TTR pension. However, from 1 July 2017, all earnings will be taxed at the same rate as an accumulation account (i.e. up to 15%).
As of 1 July 2017, a Transfer Balance Cap limits the amount of accumulation savings that can be used to start a superannuation income stream. The Transfer Balance Cap begins at $1.6 million on 1 July 2017 (indexed) in intervals of $100,000. A TTR pension balance, however, does not count towards the Transfer Balance Cap.
- ‘Superannuation Retirement Rules and Definitions‘
- ‘TTR / TRIS Transfer Balance Cap‘
- ‘When Can I Access My Super Tax Free?‘
Account Based Pension Superannuation Income Stream Over 60
As mentioned earlier, an account based pension can be started by a person who has met the superannuation ‘retirement’ rules condition of release. Meeting this definition requires one of the following to be met: permanently retiring after preservation age, an employment arrangement coming to an end after age 60, or attaining age 65.
Once any of these conditions are met, an account based pension can be commenced using accumulation savings.
Similar to a TTR Pension, all superannuation income payments are received tax free, except for the Taxable (untaxed) component.
All earnings received from investments supporting an account based pension are also received tax free, even after 1 July 2017.
There is no upper threshold on the income that can be drawn from an account based pension in any one year. The minimum income requirement that must be drawn is based on the superannuation income stream recipient’s age, as follows:
|Age||Percentage of Account Balance on 1 July Each Year|
|95 or older||14%|
The purpose behind the minimum pension income standards is to stop older Australian’s from retaining wealth in the tax-effective superannuation environment. The minimum pension income standards force money out of the tax-effective (and tax-free) environment into the economy or into investments where earnings are taxed at marginal tax rates.
As of 1 July 2017, the introduction of the Transfer Balance Cap will limit the amount that can be used to commence an account based pension to $1.6 million (indexed). Existing account based pensions, in place prior to 1 July 2017, will also need to comply with the new measures. If an individual also receives a defined benefit pension income stream, that too will count towards the Transfer Balance Cap.
Exceeding the Transfer Balance Cap will result in Excess Transfer Balance Cap tax on notional earnings.
- ‘New Superannuation Rules and Changes 2017/2018’
- ‘Transfer Balance Cap $1.6 million’
- ‘Calculating Notional Earnings Transfer Balance Cap’
Superannuation Income Stream Over 60: Reversionary
A reversionary superannuation income stream is an income stream that will automatically revert to another person (usually a spouse) once the recipient passes away. The benefit of this is that it provides certainty around who will receive benefits upon death and significantly reduces the likelihood of being challenged, as the reversionary superannuation income stream does not pass through the deceased’s estate. This can be beneficial for estate planning where blended families are involved or 2nd or 3rd marriages.
A reversionary pension is different to putting in place a binding nomination or non-lapsing binding nomination which, while providing a high level of certainty and avoid being passed via the estate, do not automatically continue being paid to the intended beneficiary.
Superannuation Income Streams Over 60: Centrelink / DVA / Aged Care
Superannuation Income Streams for individuals over age 60 are assessable for Centrelink, DVA, Aged Care and all other social security means tested payments. The amount that is assessed will depend on when the income stream was commenced and when the social security benefits (e.g. Age Pension) payments began being received.
Generally, the full account balance of the account based pension will be assessed for Centrelink purposes.
If the account based pension was started after 1 January 2015, then the deeming provisions will apply.
- How Is Super Assessed For Aged Care?
- Defined Benefit Income Stream Schedule For Centrelink Assessment Purposes
- Average Retirement Age in Australia
If the account based pension was started prior to 1 January 2015 and the recipient was eligible for social security means tested payments at that date, the assessable income for Centrelink, DVA and aged care purposes will be calculated using the Centrelink Deductible Amount Formula.