PENSION:
A regular payment made during a person’s retirement from an investment fund to which that person or their employer has contributed during their working life.
There are 5 types of Pensions and they are Transition to retirement (TTR) pensions, Account-based pensions, Annuities, The government’s Age Pension, and Withdrawing super as a lump sum.
1. Transition to retirement (TTR) pension
A transition to retirement (TTR) pension (or income stream) enables an employee to access some of the super he had saved via regular payments once he reaches his preservation age, even if he is receiving an income from his employer or business. Preservation age is between 55 and 60, depending on the date of birth.
TTR strategy can be useful to supplement income if a person reduces his work hours or boost super and save on tax while working full time.
- TTR Withdrawal Limits and condition of release
A Minimum withdrawal percentage is 4% and the maximum is 10% of the super savings. To make lumpsum withdrawal a person should meet certain condition of release such as retirement.
It’s also worth noting that the income one receives is based on the amount he has in his super, so he won’t be guaranteed an income for life. And, by drawing down on his super, he may be reducing the amount he has left to fund his eventual retirement.
2. Allocated Pension or Account-Based Pension (ABP)
An allocated pension (or account-based pension) allows an employee to draw a regular income from his super savings once he has satisfied a superannuation condition of release, such as retiring after reaching preservation age. He can also make lump sum withdrawals.
Because an account-based pension is made up of the money saved in super (which differs from person to person) it’s likely that it won’t provide an endless income.
- ABP Withdrawal Limits
There is no limit in withdrawal from account-based pension, but a minimum withdrawal is mandatory. The Table below shows the minimum withdrawal percentage from account-based pension:
| Age | Normal Yearly Minimum Withdrawal | Yearly Minimum withdrawal in 2021/22 |
| Under 65 | 4% | 2% |
| 65-74 | 5% | 2.5% |
| 75-79 | 6% | 3% |
| 80-84 | 7% | 3.5% |
| 85-89 | 9% | 4.5% |
| 90-94 | 11% | 5.5% |
| 95+ | 14% | 7% |
Restrictions in converting super to pension
A maximum of $1.7 million can be transferred from super to pension phase to use an income stream in retirement.
3. Annuities
An annuity provides a series of regular payments over a set number of years, or for the remainder of your life, depending on whether you opt for a fixed-term or lifetime annuity.
4. Age Pension or Centrelink Pension
The Age Pension is different altogether as it is a government benefit paid to eligible Australians who have reached their Age Pension age.
- On 1 July 2021, Age Pension age increased to 66 years and 6 months for people born from 1 July 1955 to 31 December 1956, inclusive.
- If your birthdate is on or after 1 January 1957, you’ll have to wait until you turn 67. This will be the Age Pension age from 1 July 2023.
- Currently, to be eligible for a full or part Age Pension, one must satisfy an income test and an assets test, as well as other requirements.’ Mentioned below:
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- – Aged 66 or over, depending on when you were born.
- – Be an Australian resident and have lived in Australia for at least 10 years.
- The value of various assets you have, and any income you receive, will determine whether you’re eligible and the amount of money you’ll receive in Age Pension payments.
- The rates for a full Age Pension for Australian residents for the period 20 March 2021 to 19 September 2021 are listed below:
- Single: $952.70 per fortnight (approximately $24,770 per year)
- Couple (each): $718.10 per fortnight (approximately $18,670 per year)
How does the Centrelink age pension work?
Income Test
- Centrelink will assess your income and assets to determine how much money you’ll receive through the Age Pension.
- When assessing your income, Centrelink will consider all income streams you receive, including from sources outside Australia.
- This includes things like:
- -Employment
- -Pensions, including account-based pensions
- -Annuities
- -Investments
- -Salary packaging.
- It doesn’t include things like:
- -Rental assistance payments
- -Payments through an NDIS package
- -Emergency relief payments
- -Regular payments from a close relative.
Assets test
Centrelink will also use the market value of your assets to decide. Assets include things like:
- investment properties
- caravans, cars and boats
- business assets.
Asset and Income Threshold:
From 1 July 2021, pensions reduce when your assets are more than the limit for your situation.
| Your situation | Homeowner | Non-homeowner |
| Single | $270,500 | $487,000 |
| A couple, combined | $405,000 | $621,500 |
| A couple, separated due to illness, combined | $405,000 | $621,500 |
| A couple, 1 partner eligible, combined | $405,000 | $616,000 |
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- From 1 July 2021, pensions reduce when your income are more than the limit for your situation.
| Combined income per fortnight | Amount your combined pension will reduce by |
| Up to $320 | $0 |
| Over $320 | 50 cents for each dollar over $320 |
5. Withdrawing super as a lump sum
When the time comes for you to access your super, you might also be wondering whether you’d be better off taking the money as a lump sum rather than as pension payments.
Withdrawing super as a lump sum isn’t always the best option and there may be tax implications to consider. Before deciding, think about how you plan to spend or invest this money, and what you’ll live on if you have minimal or no super left.
Tax Implications on withdrawals
TTR income – 15% taxable
Pension Phase i.e., above 60 – tax free
