Starting an account based pension with your super when you retire could enable you to receive a tax-effective income and make your savings last longer.
How does the strategy work?
When you retire, it can be tempting to take your super as a cash lump sum. However, using your super to start an account based pension1 could be a more tax-effective option. This is because:
- no tax will be payable on earnings in the fund2
- you can receive $49,7533 pa in tax-free income between your ‘preservation age’4 and 59, and
- when you reach age 60, the pension income payments will be completely tax-free5 and you don’t have to include these amounts in your annual tax return.
1 There is a limit on the total amount that can be transferred to retirement phase in a person’s lifetime.
This limit is $1.6 million in 2017/18 (subject to indexation).
2 Assumes you are in retirement phase.
3 Takes into account low income tax offset and 15% pension tax offset and assumes no other
income is received.
4 Preservation age is 55 for those born before 1 July 1960 and gradually increases to 60 depending
on date of birth.
5 Assumes the pension is commenced from a taxed super fund.
SUPER TIP – Simple explanation of super strategies:
The following links are other super tips – click below
Top up your income when cutting back work
Make insurance more affordable
Top up your super with help from the government
Convert business capital into tax-free retirement benefits
Sacrifice pre-tax salary into super
For more information on this subject feel free to get in touch with us click here.
To read more about our specialised service offers for SMSF, please click here.
Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It’s also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.