This article provides you with a guide to superannuation income streams.

We will deal specifically with Account Based Pensions and Non-Commutable Account Based Pensions.

Why? Well these are the most common superannuation income streams used today.

Ever since the Simpler Super reforms in 2007, the benefits associated with other types of superannuation income streams became obsolete, unless they had commenced prior to this date in which case they were ‘grandfathered’ to ensure the pension recipient was not adversely affected.

Superannuation Income Stream – Account Based Pension

An Account Based Pension is a retirement income stream commenced with your accumulated superannuation savings.

Account Based Pensions are flexible and allow you to draw any level of income, up top the total value of the pension, in any one year – provided it is above the minimum requirement.

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The minimum annual pension requirements are based on the age of the pension recipient and detailed in the table below:

Age Percentage of Account Balance
2008FY 2009FY-2011FY 2012FY-2013FY 2014FY Onwards
Under 65 4% 2% 3% 4%
65-74 5% 2.5% 3.75% 5%
75-79 6% 3% 4.5% 6%
80-84 7% 3.5% 5.25% 7%
85-89 9% 4.5% 6.75% 9%
90-94 11% 5.5% 8.25% 11%
95 or more 14% 7% 10.5% 14%

Why am I required to draw a minimum income from my Superannuation Income Stream?

There are two ‘phases’ that you can hold your superannuation savings in – Accumulation Phase and Pension Phase.

Accumulation Phase is where your superannuation savings are held until you meet a Retirement Condition of Release, at which stage you can leave your savings in Accumulation Phase or commence a pension (income stream) and therefore entering Pension Phase.

Superannuation Income Stream

All earnings received from your superannuation investments while you are in Accumulation Phase can be taxed up to 15%.

All earnings received from your superannuation investments while you are in Pension Phase are received tax free.

As you can see, if you didn’t have to draw a minimum income, everyone who had the ability to convert to pension phase would do so in order to avoid paying the 15% tax on earnings.

Therefore, the Government requires you to meet the minimum income requirements in order to help stimulate the economy (presumably), or retain your funds in Accumulation Phase, where earnings are taxed at 15%.

Information on Paying Tax on Pension Income

Superannuation Income Stream – Non Commutable Account Based Pension

A Non-Commutable Account Based Pension (aka NCAP, Transition to Retirement Pension, TTR Pension, TRIP, TRIS) is very similar to an ordinary Account Based Pension.

The difference?

Non Commutable Account Based Pensions are income streams commenced by people who have reached their superannuation Preservation Age, are under age 65 and continue to work.

This is a means of accessing your superannuation while you are still working.

Some people use it to supplement their employment income as they slow down in work and near retirement (as was intended).

Others use it to reduce their tax obligation, used in conjunction with salary sacrificing or making self-employed superannuation contributions under a TTR Strategy.

Just like an ordinary Account Based Pension, Non Commutable Account Based Pensions require you to draw an annual minimum income amount – as stated in the table above. However, one key difference of a Non Commutable Account Based Pension is that the annual income you are able to withdraw from such a pension is limited to 10% of the account balance, calculated on 1 July of each year.

Also, as the name suggests, lump sum commutations are unable to be made from the capital value of the pension balance.

These are the only differences. All other characteristics of a Non-Commutable Account Based Pension are identical to an ordinary Account Based Pension.

If you would like anything clarified or have any further questions about Superannuation Income Streams any other 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.

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