Account Based Pensions
What is an Account Based Pension?
An Account Based pension is a pension payable from a member's account from which regular income payments are made following retirement or cessation of employment, or in the case of transition to retirement, while still employed and once you have reached your preservation age.
A flexible form of investment, an Account Based Pension gives you a regular income. It can also provide key tax advantages.
From 1 July 2017, there has been a limit on how much you can transfer into or have at any time in the retirement phase of super where your earnings are exempt from taxation. If the balance in your pension account exceeds the cap, you will be required to remove the excess from the retirement phase and you will be liable to pay excess balance tax. The government’s objective is to limit the total amount of an individual’s super income streams that receive an earnings tax exemption. The cap for the 2018/2019 financial year is $1.6 million. It is intended this amount will be indexed each year. However, this may not result in an increase to the amount of the cap.
How does an Account Based Pension work?
Account Based Pensions allow you to determine how large a pension you want each year. The amount is determined by your personal circumstances and how long you want your pension to last. Please note that your pension payments over a financial year are subject to a minimum percentage of your account balance as at 1 July each year. The percentage is based on your age as shown below:
|Age at start of
pension or 1 July
|Minimum factor||50% Reduction to
(for 2019/20 & 2020/21)
|95 or more||14%||7%|
Account Based Pension Advantages
- You can start a VISSF pension online.
- Enjoy tax free investment earnings on your account.
- In most instances tax concessions apply to pension payments to members who are under 60 years of age.
- Payments to members over the age of 60 are tax-free.
- Choose the amount of your pension payment (subject to the limits set by legislation).
- You can make lump sum withdrawals. (If you have reached your preservation age, but have not retired from the workforce, lump sum withdrawals are limited to the amount of any unrestricted non preserved portion of the benefit.) Pension payments are made to your bank account each month.
- You can choose from the full range of investment options available to Fund members.
- On death, the residual amount can be paid to your dependants and/or legal personal representative of your estate as a lump sum, or (if permitted) as a pension to a dependant.
Account Based Pensions and Transition to Retirement (TTR)
Transition to retirement allows you to access all or part of your preserved benefit once you have reached your preservation age, even if you are still employed. A typical example involves choosing to continue working on a part-time basis and using part of your superannuation as an Account Based Pension to supplement your employment income.
While you are receiving a transition to retirement pension, the maximum pension payment that can be made in a financial year is 10% of your account balance at the previous 30 June (or your account balance when you commence the pension).
Please note: If you start a Transition to Retirement Pension when you reach your preservation age, but before you have retired from the workforce, your pension can only be commuted back into a superannuation account.
It is important you seek financial advice when deciding whether an Account Based Pension is the right product for you.
Please contact our Client Services Team or download the Product Disclosure Statement and the Pension application form here. This statement also explains the features of the VISSF Account Based Pension.