Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 530

Are you paying tax by not starting a super pension?

Over age 60, superannuation benefits paid as either a lump sum or pension are tax free and not assessable for income tax. Why doesn't everyone convert from accumulation to pension as soon as possible? In the recent Class Benchmark Report, one graphic stood out. While only 12% of SMSF members aged 65 and over remained entirely in accumulation, half of APRA fund members over 65 had not switched any of their super to pension. The amount not switched to pension by over 65s is estimated at $225 billion. They may be paying too much tax and should be advised of the choice.

In the accumulation phase, investment earnings are taxed at 15%, whereas the tax rate is nil in pension phase provided certain rules are met. As the ABS data below shows, retirement from the workforce, and therefore eligibility for a super pension, is most common in the 60-64 age group for both men and women, with high numbers for age 65 and over. For some, the pension opportunity starts at 60.

What are the conditions to start a pension?

Starting a pension in superannuation is not complicated and it does not require a change in thinking from saving to spending. While withdrawals must be made from a super pension account each year, the money does not need to be spent and can be saved outside the pension account. Sometimes, the superannuant can continue working.

(A super pension should not be confused with the Age Pension from the government. There are also Transition to Retirement (TTR) income streams which do not carry the same tax benefits. Check your personal circumstances with a financial adviser before taking any action).

The Conditions of Release to start a super pension are:

  • reach preservation age and permanently retire
  • cease employment after the age of 60 even if later return to work
  • age 65 years and over, even if not retired.

Preservation age varies between 55 and 60 depending on date of birth. There are other special circumstances which we won’t dwell on for the purposes of this article. 

The opportunity from the age of 60 is probably less known than the eligibility for a super pension at age 65. Super pensions are flexible with a minimum of 4% of the balance drawn out each year, depending on age. New contributions cannot be made to a pension fund but an accumulation fund can operate at the same time and accept contributions.

Super of $400,000 earning say 8% a year generates $32,000 a year of investment income, which at 15% is $4,800 a year.

The maximum that an individual can transfer from accumulation to pension is determined by the personal Transfer Balance Cap (TBC), currently $1.9 million. 

Why members do not start super pensions

On the surface, a tax rate of nil versus 15% looks like a no-brainer, but half of APRA fund members do not lower their taxes after the age of 65. Some may be eligible for a pension account from the age of 60.

What’s happening?

1. Many members do not know about the tax treatment, especially those in APRA funds. They do not focus on their superannuation, the rules are too complicated, their super fund has not informed them or they haven't opened the mail. Tax is deducted at the fund level so the tax payment is not apparent. It’s more likely that SMSF trustees are advised by either a financial adviser or accountant. 

Liam Shorte of Sonas Wealth said:

"From experience, the biggest reason is that people who have not received advice think you cannot move in to pension phase until you stop working.

The second biggest reason is that those working often put it in the too hard basket as they have enough from employment income to meet their living expenses and just leave super until they need it as they do not understand or know about the tax benefits of pension phase.

No matter how many letters the industry funds send them, if they don’t open the letters or feel it is advertising, they just ignore the call to action.

Last year I took over a client who was 84 and finally retired, closing his business, and had super that he was told 20 years ago he could access when he stopped working and so he never did anything about it until he actually retired!"

Large super funds must accept some blame for not identifying their members at the age of 60 or 65 more actively and explaining the options. AustralianSuper has proposed a scheme where all members over 65 are automatically converted to pension with an opt out, in coordination with the Age Pension.

As ASIC and APRA said in their July 2023 Review on the Implementation of the Retirement Income Covenant (RSE=Registrable Superannuation Entity).

“Overall, there was a lack of progress and insufficient urgency from RSE licensees in embracing the Retirement Income Covenant to improve members’ retirement outcomes.” 

2. Some members do not want to draw down their superannuation preferring to build the balance within super for retirement spending when needed. Perhaps they do not realise that the money does not need to be spent and can be invested in another vehicle. 

3. An account-based pension may affect entitlement to social security benefits, although this is unlikely to impact most SMSF trustees. Lyn Formica of Heffron advised:

"In terms of the social security income test, there can be an incentive not to start a pension but only when an individual is below Age Pension age. This is because no amount is counted as income in respect of accumulation account balances (ie there is effectively no deemed income) for individuals below Age Pension age. But when an account-based pension is commenced, whilst actual pension payments are ignored for income test purposes, a deemed amount of income is counted.

Once an individual reaches Age Pension age, the income test treatment of leaving monies in accumulation phase or commencing an account-based pension is effectively the same."

 Again from Liam Shorte:

"For some, when they meet a Condition of Release like retiring after age 60 or reaching 65, they deliberately delay the move to pension phase if they are part of a couple where the older one is getting the Age Penson or Disability Pension. They may lose or receive a lower benefit if the younger partner moved to pension phase earlier than when accumulation is counted as an asset at 67."

4. According to the Class Report, far more APRA fund members withdraw lump sums in larger amounts after satisfying a Condition of Release (including reaching 65) than the number of members who commence a pension and withdraw progressively. Their evidence suggests many retirees are withdrawing the entire balance after they become eligible rather than opening a pension account.

This may be financially appropriate where, for example, paying off a mortgage allows higher eligibility for an Age Pension while reducing or eliminating mortgage payments (and the value of an own home does not count in the assets test whereas a superannuation balance does). Says Joshua Williams, writing in the Class Report:

“The total number of members between 60 and 64 (1,573,352) drops to less than half that number 10 years on, in the 70 to 74 cohort (707,353). Most are choosing not to preserve their benefits in the superannuation environment at all. It wouldn’t be fanciful to imagine that, after repaying the mortgage on the family home, splurging on a new car and a cruise, most of us will end up relying on the Age Pension after all!”

The need to educate on tax benefits

While it is worthwhile reviewing individual circumstances against this list of reasons, for the most part, the failure to switch to a pension fund is due to a lack of familiarity with the opportunity.

In the 2023 Intergenerational Report, withdrawals from superannuation are estimated to increase from about 2.4% of GDP per annum in 2022-23 to 5.6% of GDP in 2062-63. There is a big incentive for millions of older Australian to realise the tax advantages of pensions.

It’s surprising that only one APRA fund member in every eight over the age of 65 has converted their superannuation entirely from accumulation to pension, and educating members on the opportunities is essential. They could save thousands a year in tax.

 

For more information on pensions, especially in SMSFs, see this paper from Heffron, "The Ins and Outs of SMSF Pensions in 2023/2024".

 

Graham Hand is Editor-At-Large for Firstlinks. This article is general information. My thanks to Lyn Formica of Heffron and Liam Shorte of Sonas Wealth for input to this article but any mistakes remain mine and are based on my understanding of current legislation. Check your personal circumstances with a financial adviser before taking any action.

 

56 Comments
Rob
January 02, 2024

My friend is 67 and wife is 64.
She earns $45k whilst he is fully retired.
He has $240k in super whilst his wife has $360k
They have a $210k mortgage.
She wants to retire.
By reading this (they need professional advice), however if she works to she is 65 and they pay the house off using his Super then they fall under the assets test and he should then get full pension as she will when she turns 67.
Between 65-67 she can access her super with no affect on his full pension.
Is this correct

OJ
November 12, 2023

As mentioned by many correspondents is the lack of financial literacy in Australia.
Wasn't that long ago when a bank survey ( ?ANZ ) indicated that, incredibly, only a minority of their mortgage customers understood compound interest.!

Philp
October 17, 2023

part of this issue lies at the feet of john Howard & Peter Costello when they removed compulsory cashing rules in 2007. until then if you were of age 65 your super fund would ask you if you had met a work activity test each year or you must start drawing on your super. This made it clear the objective of super was about retirement. It also would have reduced the issues of "excessive" benefits being dealt with in the $3 million cap proposal.

Craig
October 16, 2023

I’ve been told (several times) by my super fund that I need to file a notice of intent to claim current super contributions as concessional as I cannot do that after I open an account-based pension account, even with money still remaining in the accumulation account. So not sure you can continue to make concessional contributions, even if you satisfy all the conditions, as I do.

Liam Shorte
October 16, 2023

If you have started a pension after you made the contributons and have moved your funds to pension phase (even if you left some money in there) you may not be able to claim a tax deduction. I beleieve they treat the accumulation account on a LIFO - last-in-first-out basis so the contributions you made may not be in the accumulation any more to claim the deduction. You should verify this with your tax agent and super fund. Always submit and get confirmation of the Deduction before startign a Pension.

Mark B
October 16, 2023

It really is scary that this doesn't just happen as a matter of course! It's just too much for people to think about and so the "do nothing" argument wins. Even on this article, the comments of people who are justifying not converting to pension at 65 and thus saving the tax in their Super demonstrates a lack of overall understanding, in my view (you can still get it back into Super at age 65 if required!). That's even considering the fact that people who read and comment on such articles on this websites would be considered significantly more literate on these things than the average population would be. What chance do they have?

Over the years I've spoken with a number of people about this very topic and each time they were surprised but wanted to speak with their Accountant or FP before accepting that it was true. Each time after those discussions they converted their Super to pension, but why did they need to ask? Why weren't their advisors proactive?

In my own case, I was fortunate to retire early and have the ability to do spreadsheets and modelling fairly well. My modelling was very clear and I converted my Super to pension at the earliest opportunity, age 58 accepting the lower TBC of $1.6M. The tax saved by the Super pension account was significantly more than the tax that I had to pay on the pension income since I was under 60 for the first two years, but then it was definitely a no-brainer after 60 and totally tax free. Do the numbers, I would suggest that it would be exceptionally difficult to justify not taking action on that Super pension conversion. But then I accept there will always somebody who will tell me I'm wrong even though I know exactly how much it has saved me over the past three years. Do you know how much it is costing you?

Jon Kalkman
October 15, 2023

We should not forget SAPTO - the Senior Australians and Pensioner Tax Offset. It only applies to people above pensions age, but that is the group this article is concerned with. It provides a higher tax-free threshold than other workers. For retired couples the tax-free threshold is $57,984, for singles it is $32,279. If we assume an income return of 6%, it means couples can have more than $900,000 and singles can have more than $500,000 invested in their own name, before they pay tax, assuming no other income.

For people with modest portfolios, it provides the same tax-free income as a super pension with none of the fees or regulations about minimum pension withdrawals.

Dudley
October 17, 2023

"For retired couples the tax-free threshold is $57,984, for singles it is $32,279.":

2023-24:
Single = $33,088 / 6% = $551,467
Couple = 2 * $29,783 = $59,566 / 6% = $992,767
https://paycalculator.com.au/

Age Pension Asset Test full, home owner:
Single $301,750
Couple $451,500
https://www.servicesaustralia.gov.au/assets-test-for-age-pension?context=22526

Better off spending excess on home improvement else loss of Age Pension is a "tax" of:
Single = 26 * $1,002.50 = $26,065 / y
Couple = 26 * 1653.4 = $42,988 / y


https://www.servicesaustralia.gov.au/how-much-age-pension-you-can-get?context=22526

stefy01
October 14, 2023

Is it allowable to have more than one pension account?
I have a friend who is in pension mode (under the TBC) and withdraws the minimum allowable every year. She gives the money to her accountant who then opens a new pension account. She has been doing this for a few years now. I thought this was not within the rules.

Kim
October 15, 2023

She has probably opened an accumulation account for the contributions. Pension accounts can’t accept ongoing contributions.

Geoff
October 15, 2023

You can have multiple pension accounts.

If your friend withdraws the minimum allowable amount every year it has to be deposited into an accumulation account as a non-concessional contribution - it can't just put into a pension account because it's no longer superannuation - it's just money. That accumulation account would then have to be converted to a pension account. This doesn't really make sense although it is possible, provided you keep under the TBC.

I suspect, as Kim has stated, it's going into an accumulation account as a non-concessional contribution. That makes more sense if you have significant ex-super income-generating assets. Not so much if you don't, apart from social security considerations.

stefy01
October 15, 2023

Thank you. I did not know about this until now.

Karl
October 14, 2023

Hi, Is it possible to, using the example you described of Super of $400k, to reinvest the 4% withdrawal amount of $16k back into accumulation phase, assuming g we are under the TBC of $1.9M. This option may save $4.8k in tax.

Peter
October 14, 2023

The article focuses entirely on tax expense. I am sure you appreciate that tax is but one element in super investment decisions, and relative returns on invested funds is ultimately a driving factor.

The focus here is not on people who need to draw-down super to fund general living expenses, for whom a super pension account arrangement is logical. The accounting firm for my SMSF recently commented that all their clients, apart from one, were in super pension mode.

My comment on the article has to do with people investing some or all drawdown funds on personal account. It needs to be recognised that, for most people, professionally managed super returns are generally better than personally managed returns, and further, the impact of high personal marginal tax rates (up to 47%) significantly reduces personal investment returns. These are good reasons for certain people to continue with super accumulation accounts, rather than pension account arrangements.

John H
October 13, 2023

I am 65 and have around $230K in an industry super funds , mostly in growth assets. The balance has actually gone backwards in 2022-23. Is it not the case that if I transfer the account into pension phase that I would be paying much more in administrative fees than the equivalent sum in accumulation phase when the market is poor and profits are low or negative?

Liam Shorte
October 13, 2023

Very little difference in fee between accumulation and pension phase. The franking credit refund in pension phase may help offset low profits and fees in bad years.

Robert Bye
October 13, 2023

If I am in the accumulation phase and take out (say) $200,000 lump sum, is that counted as income or a capital withdrawal? How would this effect pension and Commonwealth Health Card eligibility???

Liam Shorte
October 13, 2023

Robert it depends on first meeting a condition of release . In general if a person leaves any one employer after age 60 or retire after 60 they can access the lump sum tax free as a pension or capital depending on their circumstances. The minute thry take it out of super or move to a pension it is treated as an asset and deemed income for the Age Pension and deemed income for the CSHC eligibility. Please seek personal advice as this is just general information.

Chris M.
October 13, 2023

I'm 63. In today's high inflation environment, I'm happy to hold off on moving to pension mode and thereby locking in my TBC at $1.9m. I fully expect that with inflation still untamed, the next few FY will see the TBC increase to $2.1m or higher.
Also, as a divorcee who has held off buying a new principal residence, to remain in Accumulation offers greater flexibility than moving to Pension mode and then withdrawing a large amount to buy a house. That is a real killer, in terms of damaging your TBC and the prohibition of making future contributions under the superannuation reforms implemented from 1 July 2017.

Peter Care
October 12, 2023

I passed some of this information to a 65 year old who was still in the workforce. He thought you could not touch your super until you reached aged pension age @ 67. He could not believe he could start a tax free pension immediately and still be working. There is so much misinformation out there particularly amongst the working classes.

Liam Shorte
October 13, 2023

Very true Peter. Financial literacy from teens to retirees is very poor in this country. How young people finish school without being thought personal skills in budgeting, tax and superannuation, and not academic theory but serious life skills is beyond me. Likewise every person over 50 should be using the MoneySmart website to guide them in basics of retirement planning. Then they can advance to Firstlinks!

Mike Magill
March 17, 2024

It's not misinformation. He just hasn't bothered reading up about it. You can lead a horse to water but can't make it drink.

GG
October 12, 2023

Graham, That's a fascinating take on what is becoming an increasingly daunting problem: most members' lack of engagement/understanding of their super fund(s). Or indeed, of the entire system. I presume that is the regrettable downside of a system where contributions are not only mandatory, but 'removed' prior to the wage being received. When you consciously fork out the hard-earned, knowing you might not see it again for several decades, you are nothing if not engaged with it! I have a suspicion a significant reason is the fact that accumulation mode is so-named. After all, who doesn't want to 'accumulate'? Even members who are aware their fund's earnings will be taxed at 15% while in 'accumulation' mode would prefer that to shifting their funds into something they (wrongly) think does not attract earnings. Time to reconsider the labels, perhaps? GG

Fund Board member
October 12, 2023

I held off creating a pension account until this current financial year as the indexing of the maximum amount to the CPI meant that I could move quite a bit more on 1 July than I could on 30 June. Perhaps some others are holding off for that reason as well, because once you set up an account at the $1.9 mn limit you can't put any more in.

As a Fund director I can assure those cynics who think we're not interested in providing a service to our members that this couldn't be further from the truth. At least not at my Fund, which has had a retirement advisory service in place for ages that's well used by our members approaching or in retirement.

And in any case, the Retirement Income Covenant now requires that all Funds have a strategy for assisting members in relation to retirement matters, including drawing down. APRA is all over this and is keeping a very close eye on all Funds and how they're travelling.

Geoff
October 13, 2023

I worked for a major retail superannuation fund for 15 years, and I would echo your comments. We tried and tried and tried every way we could think of to get people to take an interest in their super and learn more about it. A lot of people perhaps have a mindset that it's all too hard, but it really isn't THAT difficult to understand.

AR
October 12, 2023

The rules are a bit complicated, but here is my understanding of them. If you withdraw money tax-free from a pension account and don't spend it all, you can deposit the balance into an accumulation account. Contributions you make to the accumulation account can be designated either as concessional (pay 15% contributions tax, claim a tax deduction, limit is $27.5k pa); or as non -concessional (pay 0% contributions tax, can not claim a tax deduction, limit is $110k pa). Which option you choose will depend on your personal circumstances. Those aged 67-75 need to meet a work test to claim a taxation deduction in relation to personal (concessional) contributions made to the accumulation account.

CLK
October 19, 2023

AR you have explained this very well & clear!

Frank Tuyl
October 12, 2023

"Super of $400,000 earning say 8%" seems like an exaggeration, as this kind of percentage could be mostly capital growth (which doesn't attract the 15% tax)?

Bruce
October 12, 2023

May I suggest another reason is moral hazard? The APRA-regulated funds industry is remunerated proportionately to funds under management, so they have a strong incentive to hold onto their members' funds rather than pay them pensions. This also explains why the industry lazily defaults pensions to the regulatory minimum draw-down rather then offering decent retirement income products which would provide better outcomes for their members.

Don
October 12, 2023

Another reason why some members don’t want to covert to the Pension mode is that, all Pension mode withdrawals are included in the Commonwealth Health Care Card limit of $140k.

Liam Shorte
October 13, 2023

Once you qualify age wise for the CSHC at 67 it doesn’t matter whether you leave the funds in accumulation or start a pension as your balance is deemed either way by Centrelink. The actual amount you drawdown is not a consideration on new pensions since 2015.

Greg Barrie
October 13, 2023

Pension withdrawals are not counted for the health card. But the full pension account balance is deemed and the deemed income added to other taxable income. So if you were close to the limit it may be beneficial to leave it in accumulation.
While much is spouted about the 15% tax, Australian Super balanced accumulation returned 8.22% last year, while the pension account returned 9.03%. That’s less than 1% difference. Throw in the issue of having to withdraw and possibly not being able to contribute again and accumulation accounts don’t look too bad.

Chris Davis
October 14, 2023

Although some would argue that $140K PA tax free income is a pretty decent outcome without a Health Care Card.

Rochelle
October 12, 2023

Why do we still talk about age 65 when age pension has been either access or people must now wait to age 67 to access it?
It seems to be disregarded that while there are no cashing restrictions to super access from 65 there is 2 years before Age Pension is accessible now, many of these people may still be working, but some may be in between an JobSeeker with the stricter assets test and funds best locked where they are not assessed by Centrelink. For some using the money to pay out debt would be logical, or the complexity of a partial commutation to pension will maximise position, adding complexity and for those who probably can least afford/ not value getting the right advice.

Lisa
October 12, 2023

This article states "cease employment after the age of 60 even if later return to work" which is confusing. My understanding is that the rule is actually "cease an employment arrangement" and means that someone with multiple jobs just needs to retire from one of them and keep working at the other ones. Please clarify.

Cameron Seidel
October 12, 2023

Lisa the ATO is the best reference for this situation. But it is clear that a person meets a retirement condition of release simply by ceasing a gainful employment arrangement after reaching age 60. The fact that a person may have other employment arrangements that continue will have no adverse impact on their ability to access the value of their funds as at the leaving date. Just be aware that leaving one of the employers from age 60 will enable all super benefits that accrued up to that point to become unrestricted non-preserved, but any future contributions and earnings would be preserved until a further condition of release is met or upon turning 65. That's why is important to get the fund to confirm in writing that value of your funds converted to unrestricted non-preserved at the time a retirement condition of release is met.

Lisa
October 13, 2023

Thanks. Can I just take dollars straight from the accumulation account (e.g. to fund a renovation/buy a home or whatever) and also transfer a lump sum (leaving a small amount in accumulation) into a pension account? Am I right in thinking that if I transfer to pension it will be part of my TBC whereas if straight from accumulation it isn't? Or do all dollars in accumulation have to move through a pension account first?

Jim
March 08, 2024

Say i work fulltime (38 hours/Wk) and at age 59 sign up for some petty 2 hour/week casual job. If i then quit the casual job at 60, does that meet the retirement age requirement?

Graham W
October 12, 2023

If you are over 60 and have left at least one job or employment arrangement, then yes you can draw against your super no matter what your current or future circumstances are.

Cameron Seidel
October 12, 2023

There may be other reasons why someone may choose to leave all or some of their super benefits in accumulation phase. Take a single homeowner for example, over 60. They may be eligible for JobSeeker benefits, provided they meet the mutual obligation requirements and have total assessable assets below the JobSeeker Assets-test cut off point. The JobSeeker benefit may offset the earnings tax of super benefits retained in accumulation phase. They can still access their super if required provided they have met a retirement condition of release, such as leave an employer from age 60.

Jeff
October 12, 2023

"2. Some members do not want to draw down their superannuation preferring to build the balance within super for retirement spending when needed. Perhaps they do not realise that the money does not need to be spent and can be invested in another vehicle."

This old chestnut comes out all the time and whilst it does apply to many uninformed, there are many out there that have calculated that if they remove their super from Accumulation into a pension, and they dont have need for those funds, they park it either in a non-interest bearing account, or invest it where they can end up paying tax at 19% (out of their own pocket). My father in law is on a part pension with other income coming from a share portfolio. His super account is reasonable modest (less than $150K) but any change would make him worse off!

Geoff
October 12, 2023

If you're not working and your only taxable income is from ex-super investments, it takes a fair sized portfolio before the earnings approach an overall tax rate of 15%.

Graeme
October 13, 2023

If his super pension withdrawals would be excess to requirements, he could contribute that money back to a super accumulation account.

OldbutSane
October 12, 2023

All these people bragging that they converted to pension phase at age 60, well some of us were really smart and did it at age 55 (and that was five years after I retired).

Regarding why some are still in accumulation phase there are also other reasons. For example you can still get a low income concession card if you are not pension age if you only convert some of your super to pension phase.

Lisa
October 12, 2023

The system makes it hard to switch from accumulation to pension mode at aged 60. My understanding is that I just need to cease an employment arrangement (resign from one of my 2 jobs) but when I go to the Australian Super website you have to dig very deep to find this out and it doesn't tell you what the definition of an employment arrangement is. Bit nervous to quit a job and then find that it didn't meet requirements. Next step for me is to contact Australian Super to clarify first before I resign. Big benefits in switching as there is almost a 1% difference in returns between accumulation and pension modes, well worth it. Can also then follow a recontribution strategy to convert funds to post tax within superannuation for future estate planning purposes.

Cameron Seidel
October 12, 2023

Lisa a Centrelink Separation Certificate https://www.servicesaustralia.gov.au/su001 should satisfy the industry fund or a termination letter on company letter head or with a company stamp should suffice.

Jim
October 12, 2023

Another reason to delay the commencement of a super pension is to wait for indexation of the Transfer Balance cap and maximise the amount that can be transferred

Rob
October 12, 2023

My own experience was to commence an income stream from my SMSF at age 60 (no financial advisor) however the experience of many of our friends/family exactly mirrors the examples given above, ie. too hard basket/don't understand tax rules, different ages of partners in relation to age pension entitlement/loss, etc. and/or withdrawing the entire super amount as they don't trust "super" and want to control their money and know that it's "safe" in Term Deposits even though it may be a substantial sum.
Bottom line is many people have no real clue as to how the system works or how they can make it work for them.

Brian
October 12, 2023

Yes, Rob, same with me, I started a pension account at 60 to avoid the tax, and conveniently changed jobs at the time which allowed me to 'cease employment' even though I still worked. What I think is ridiculous is the complexity of it all, why bother with something like TTRs or do this at 55 or do this at 60. It should be simple. Accumulate until 65, pension after that, everyone would understand.

Jack
October 12, 2023

If you fully retire after age 59, you reach your preservation age and can access your super pension. From next year the preservation age will be 60. If you were required to accumulate until age 65, that would not be possible.
One of the features of super is that you can access your super tax-free from age 60. From that age, your super pension fund pays no tax and neither do you. And that is the whole point of making contributions to super over 40 years, paying tax along the way but not being able to access it.

Disgruntled
October 14, 2023

Not all of us want to work until we are 65 and would rather the status quo.

I already hold fears that in the not to distant future we will see limits on lump sum withdrawals and the introduction of mandatory Super Pensions or Annuities.

The wording of the proposed definition of Superannuation forewarns this occurring.

Proposed objective – The objective of superannuation is to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way. – The objective of superannuation is to support savings ???? ?????????????? ???????????? ?????? ?? ?????????????????? ???????????????????? , in an equitable and sustainable way

Another change that may come about is raising the preservation age from 60 to 65.

The limits on lump sums in the future are a given, just the when, one only has to read the comments here and on other Superannuation discussions... Can I take out a lump sum?, What happens if I take out a lump sum?

Government want our Super to last longer. Income streams will be the go. Limited Lump Sums.

Preservation age to rise in time because we are living longer and to keep us working longer, because of you know, good for the economy and GDP.

Steve Dodds
October 12, 2023

Just to clarify, if I withdraw money tax-free from a pension account and don't spend it all, I can deposit the balance into an accumulation account as a concessional contribution and still get the tax deduction?

Assuming one still earns significant income outside of super, this would seem like a no-brainer.

Chookduck
October 12, 2023

There are age and work test limits depending on you situation. See https://www.ato.gov.au/Individuals/Super/Growing-and-keeping-track-of-your-super/Caps-limits-and-tax-on-super-contributions/Restrictions-on-voluntary-contributions/

John
October 12, 2023

But why would you take money out of a tax-free account, then deposit it back into an accumulation account just to get a one-off tax deduction? Now that doesn't make any sense at all.

Jack
October 12, 2023

The work test, which did require that you were in paid employment for 40 hours over a 30 day period in order to make a contribution after age 65, has been abolished from 1 July 2022. You can now make voluntary contributions (up to the cap) until age 75.
It means if you have super pension withdrawals that are excess to requirements, you can contribute that money back to super. The only catch is, that contribution cannot go back into your pension fund - it must go into an accumulation account.
That leads to another complication. Because accumulation and pension accounts are taxed differently, you will need an actuarial certificate to apportion the appropriate tax between the 2 accounts.

Gareth
October 12, 2023

It is even better than what the article proposes. It is possible to be in pension phase, still work and only ever pay 15% tax on $27500 with anything else being tax free. The expression “no brainer” is apt but unfortunately it should be applied literally to most people.

 

Leave a Comment:

     

RELATED ARTICLES

What exactly is the ATO’s role in SMSFs?

What are wealth industry regulators thinking about?

SAPTO and LITO, or do you really need an SMSF?

banner

Most viewed in recent weeks

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

How much do you need to retire comfortably?

Two commonly asked questions are: 'How much do I need to retire' and 'How much can I afford to spend in retirement'? This is a guide to help you come up with your own numbers to suit your goals and needs.

Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

The secrets of Australia’s Berkshire Hathaway

Washington H. Soul Pattinson is an ASX top 50 stock with one of the best investment track records this country has seen. Yet, most Australians haven’t heard of it, and the company seems to prefer it that way.

How long will you live?

We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.

Latest Updates

Property

Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

Exchange traded products

The catalyst for a LICs rebound

The discounts on listed investment vehicles are at historically wide levels. There are lots of reasons given, including size and liquidity, yet there's a better explanation for the discounts, and why a rebound may be near.

Retirement

The new retirement challenges facing Australians

A new report from Vanguard has found an increasing number of Australians expect to be paying off a mortgage in retirement, or forced to rent. A financially secure retirement is no longer considered a given.

Strategy

Why aren’t there more Warren Buffetts?

Warren Buffett is widely regarded as the most successful investor ever. Rather than keep his secret sauce hidden, he's shared his knowledge for decades, so why aren't more investors able to replicate his methods and success?

Retirement

Finding joy in retirement

Retirement can last more than 30 years, necessitating thoughtful planning. Many miss workplace friendships, identity, status, expertise, and routine, but these can be replaced with renewed activities and purpose.

Shares

Bull and bear case for Australian equities for FY25

ASX market bulls point to corporate balance sheets and earnings, while bears highlight company valuations and persistently higher inflation. It's best to ignore short-term noise and focus on investing in quality companies.

Gold

How gold can help diversify your portfolio

As inflation is likely to remain stubbornly elevated, the correlation between bonds and equities could remain high, reducing diversification within portfolios. A gold allocation may help to better protect your investments.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.