Our pensions offer a flexible way of accessing and managing your super savings – creating a tax-effective income stream for your retirement.
What is an account-based pension?
Also known as an allocated pension, an account-based pension is a way to provide you with a regular income stream in retirement while continuing to invest and grow your capital – even while you’re accessing that money.
You can use an account-based pension as either the primary source of your retirement income, a supplement to your Centrelink Age Pension or as a component of a retirement income portfolio that includes income things like rent from investment properties.
We offer our members three pension products, depending on your needs and retirement goals.
Who can take advantage of an account-based pension?
If you’ve made the decision to retire from the workforce or have reached your preservation age, you can use an account-based pension to turn your super into an income stream to fund your retirement.
Currently, anyone who has been deemed by the Government to have achieved a “Condition of Release” – including being aged 57 or older or being permanently incapacitated – and has a super account are eligible to take out an Australian Catholic Superannuation account-based pension.
The benefits of an account-based pension
Once you’ve decided that you want to start accessing your super, an account-based pension can help you receive a regular income. So, why use an account-based pension?
- You’re in control:
- Set the payment amount and frequency based on your needs
- Choose investments to continue to grow your balance
- Reduce taxes:
- No tax on pension payments after age 60
- Between ages 55-59, payments are taxed at your marginal rate less a 15% tax offset
- There is no tax on investment earnings
- Future flexibility:
- Once you retire, you can take out a lump sum payment
- Money left in your pension account could be passed to your beneficiaries
- Responsible management:
- Fees and costs are limited to what it costs to manage the Fund, meaning more of your savings stay in your account
- All profits are returned to members or used for your benefit
- There are no upfront costs to start either a RetireChoice or RetireSmart account-based pension
- A lifetime of support:
- Dedicated Member Services team
- Financial advice options to help guide you through your retirement.
There are no guarantees of investment performance or that your super balance will last through the rest of your life.
Is there a limit to how much I can have in an account-based pension?
There is a limit to the amount of money that you can transfer to a tax-free account-based pension during the course of your lifetime. This is known as the transfer balance cap.
From 1 July 2017, the transfer balance cap is $1.6 million, however, this amount is indexed periodically in $100,000 increments in line with CPI.
There may be tax implications if you exceed that cap. This cap is cumulative for all your pension accounts, even if they’re held by different funds. Generally, if you exceed the cap, the excess is returned.
If you think your accounts are near the cap or would like clarification around the rules, we would be glad to answer your questions. Contact us here.
How do I receive pension payments?
You can set up regular payments from your pension to another bank account as you require – from weekly to annually – or make lump sum withdrawals as required. There are rules around the minimum that you must withdraw each year, generally as a percentage of your balance.
Taxes and your account-based pension
An account-based pension can be a tax-effective way to use your super for your retirement. Here are a few things you need to know about how taxes may apply to your finances.
Tax on investment earnings
Earnings from your pension investments (excluding transition to retirement) are tax-free. The net returns, as a result, are generally higher than the earnings on the same investment mix in a superannuation account.
Transition to retirement account returns are taxed at up to 15%.
Tax on pension payments
If you made after-tax contributions to your super, your account will be divided into taxable and tax-free components. Any after-tax contributions you made will be considered tax-free.
For the taxable component of your pension, these rules generally apply:
- If you 60 or over, no tax is payable
- If you are under 60, the taxable part of each pension payment is taxed at marginal income rates plus the Medicare levy.
You will receive a tax offset of 15% on your taxable portion of your income payment if you are:
- At or over your preservation age.
- Totally and permanently disabled (for tax purposes) or
- A reversionary beneficiary (regardless of age).
In some 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. The treatment of the taxable component depends on your age:
- If you are aged 60 or more, you will generally pay no tax on withdrawals.
- If you are under 60 but over your preservation age, the first $200,000 of your taxable component is tax-free and the remainder 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
As above, there is no tax payable on any tax-free component. The treatment of the taxable component will depend on who receives the benefit.
Lump sum death benefits are tax-free if paid to your:
- Spouse (including same-sex)
- A child under 18
- A person with whom you have an interdependent relationship
- Financial dependents.
The taxable component of a lump sum death benefit paid to a non-dependent (for tax purposes) like a non-dependent adult child will generally be taxed at a rate of 15% plus the Medicare levy.
Reversionary pension will only be taxed if the deceased pension account holder and the nominated reversionary recipient are both under age 60. A 15% offset will apply to reduce the tax payable.