Investor Education > Pension
WHAT IS AN ACCOUNT BASED PENSION?
Account based pensions, also known as allocated pensions, offer retirees a simple and flexible way of receiving their superannuation balance as a tax effective income stream. Allocated pensions have significant tax benefits, if you are aged 60 and over, all investment earnings and payments from your pension account are tax-free.
Account based pensions allow you to control your retirement income by varying the amount (subject to minimum pension payment requirements) and frequency of income paid, as well as allowing you to draw a lump sum if and when you need it. You can choose how your money is invested by your chosen pension fund provider. Fund managers offer different investment options to suit your investment strategies. Most retail pension master trusts offer dozens of investment options and easy switch facilities.
How it works
An account based pension is an investment that lets you rollover your super money into an account held in your name in a super fund (you can only start an account based pension with money you hold in superannuation). The returns you make on your investments are added to your account, which pays you regular income payments. You can commence a pension once you have met a condition of release, such as reaching your preservation age. Click here for more information on when you can access an account based pension. Many superannuation funds offer a pension option allowing you to simply rollover your super benefits without needing to sell down your existing investments.
There is no maximum limit on how much income you are able to draw from your pension however a minimum payment based on your age must be paid each year. The income stream will continue until there is no money in your account. How long the pension last depends on the initial starting amount of your superannuation, how you choose to invest it and its overall performance, the level of income that you receive and whether you take out any lump sum payments along the way.
MINIMUM ANNUAL PAYMENT
|
|
AGE ON 1 JULY |
2012/2013 |
2013/2014 |
|
Under 65 |
3.0% |
4.0% |
|
65-74 |
3.75% |
5.0% |
|
75-79 |
4.5% |
6.0% |
|
80-84 |
5.25% |
7.0% |
|
85-89 |
6.75% |
9.0% |
|
90-94 |
8.25% |
11.0% |
|
95+ |
10.5% |
14.0% |
As a result of the Global Financial Crisis and its impact on super balances, a temporary relief in the reduction of the minimum pension payment drawdown was in place for the 2008/2009, 2009/2010, 2011/2012 and 2012/2013 financial years. Minimum annual pension payments will return back to normal for the 2013/2014 financial year.
You can continue to hold investments in the pension phase with fund managers offering similar, if not the same range of investment options that are available in the accumulation phase (superannuation accounts). Investors should be aware that you may pay an entry fee when commencing a pension, even when you’re rolling over from superannuation in the same product.