• Tax & account based pensions

  • An account based pension is a tax-effective way to use your superannuation for your retirement. This is because tax concessions apply to the earnings on your account and to your pension payments.

    Depending on your other income, an account based pension may be more effective at minimising the tax you pay each year than an investment outside of super, such as a term deposit.

  • Tax on investment earnings

    • Investment earnings on your account based pension are tax-free. This means that the net returns on an account based pension are generally higher than the earnings on the same investment mix in a superannuation account. The only time this will not occur is if investment returns are zero or negative.

  • Tax on pension payments

    • When you start your account based pension, it is divided into taxable and tax-free components. (You will only have a tax-free component if you had a tax-free component in your superannuation account e.g. because you made after-tax contributions.)

      Pension payments—and any lump sum withdrawals—are withdrawn in the same proportion as your tax-free and taxable components.

      There is no tax payable on any tax-free component.

      The treatment of the taxable component of your pension depends on your age:

      • If you are 60 or over, no tax is payable.
      • If you are under 60, the taxable part of each pension payment is taxed at normal income tax rates, plus the Medicare levy.

      You will receive a tax offset of 15% on your taxable component if you are:

      • At or over your preservation age or
      • Totally and permanently disabled (for tax purposes) or
      • A reversionary beneficiary (regardless of your age).

      If you reach your preservation age during a financial year, the offset applies to the amount paid after your birthday. In many (but not all) cases, the offset will reduce the tax on your pension to zero.

  • Tax on lump sum withdrawals

    • There is no tax on the tax-free component of a lump sum withdrawal taken from your account based pension. The treatment of the taxable component depends on your age.

      • If you are aged 60 or more, you will pay no tax on any withdrawals.
      • If you are under age 60 (but over your preservation age), the first $195,000 (indexed) of your taxable component is tax-free and the remainder is taxed at a maximum of 15% plus the Medicare levy.
      • If you are below your preservation age, the whole taxable component is taxed at a maximum of 20% plus the Medicare levy.
  • Tax on death benefits

    • There is no tax payable on any tax-free component of your death benefit. However, the treatment of the taxable component will depend on who receives the benefit. It does not matter if the money is paid directly to the recipient or via your will.

      Lump sum death benefits are tax-free if paid to your:

      • Spouse (including a same sex spouse)
      • Former spouse
      • A child under age 18
      • A person with whom you have an interdependency relationship or
      • Financial dependants.

      The taxable component of a lump sum death benefit paid to a non-dependant (for tax purposes), such as a non-dependent adult child, will generally be taxed at a rate of 15% plus the Medicare levy.

      Australian Catholic Superannuation will increase the death benefit amount paid to a spouse, minor child or financial dependant by applying an anti-detriment payment. This type of payment is intended to compensate the recipient for any contributions tax that was previously deducted from a deceased member’s account balance.

      Reversionary pensions will only be taxed if the deceased pension account holder and the nominated reversionary pensioner are both under age 60. A 15% offset will apply to reduce the tax payable. If a reversionary pensioner elects to stop the pension before reaching age 60, tax may apply if the money is withdrawn as a lump sum.

  • Tax on insurance payments

    • Depending on your age, you may pay a higher rate of tax on any insured component of your benefit.

      However, there is no tax applicable on benefits paid out to you as the result of a claim for a terminal medical condition.

  • Need more information?

    Call us on 1300 658 776 or contact us if you need more information about the taxation of account based pensions.

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