Pensions (Retirement Planning)

When servicing clients for retirement planning advice, one of our key areas of our strategy advice is to convert, where eligible, a client’s superannuation from ‘accumulation phase’ into a ‘pension phase’.

Meeting your Preservation Age (55 and above)

To be eligible to convert your superannuation, you first must meet your preservation age and for those who are born prior to 30 June 1960, your preservation age is 55. For those born after this date, the preservation will gradually increase to 60. When you meet your preservation age, you are then able to convert your superannuation from an ‘accumulation phase’ into a ‘pension phase’.

Pensions are the most tax effective Structure in Australia

Pensions are the most tax effective structure available in Australia. This means that any income you receive in your superannuation such as interest income, dividends or rental income will be tax-free. In addition any realised capital gains that you can incur from a sale of an asset will also be tax-free and this is why a pension structure is the most tax effective structure available in Australia.

  • a 0% tax rate applies to income producing assets
  • a 0% tax rate on Capital Gains Tax “CGT”.

Full Retirement – Account Based Pensions

If you are fully retired from the workforce and have met your preservation age (i.e. 55 – 60 depending on your date of birth), you can immediately take advantage of converting your superannuation from accumulation to a pension. This particular type of pension is known as an account based pension.

As such, you can now start drawing tax-free income from your superannuation fund to fund your lifestyle in retirement.

The minimum draw-down starts at 4% of your account balance and is dependent on your age, however there is no restrictions on how much you can draw from your superannuation.

For example if you have a superannuation balance of $600,000, the minimum draw down on your pension per year is $24,000. However if a client wishes to draw-down an extra $15,000 for the year, that is absolutely fine as there is no restrictions on how much a client can draw-down from their superannuation.

Still Working – The Transition to Retirement (TTR) Strategy

If you are working (full-time or part-time), you can still take advantage of converting your superannuation into a pension phase as long as you meet your preservation age requirements.

This is a highly tax effective strategy that enables you to take advantage of the 0% tax treatment on pension versus the 15% tax treatment on superannuation. This strategy is also known as the Transition to Retirement Strategy (TTR).

While the account based pension has no restrictions on how much you can draw-down, the TTR strategy has a capped draw-down of 10% meaning a client can draw-down between 4%-10% of their superannuation account balance.

For example, a client with $400,000 can draw-down an annual amount between $24,000 (4% minimum) and $40,000 (10% maximum) from their superannuation.

How we can HELP you

If you have reached your preservation age, we can assist you with the following:

  • Convert your superannuation into an Account Based Pension (if you have fully retired).
  • Convert your superannuation into a Transition to Retirement Pension (if you are still working).
  • Provide you with investment advice on your superannuation assets based on your investor risk profile.
  • Ensure you receive a regular pension income stream from your superannuation.

Contact Us

If you require advice on retirement planning incorporating pensions, please do not hesitate to complete our online enquiry form below or simply contact our office to arrange an appointment.