Account Based Pensions
You can start an account-based pension by transferring your superannuation savings into a pension account and begin drawing regular payments into your bank account, just like a salary.
You can choose how much income you want (above the specified age-based minimum) and continue to receive regular income, until all of your super savings are exhausted, or you pass away. When you die, the balance of the savings is paid to your nominated beneficiary or to your estate.
The minimum pension factors are based on your age and are as follows:
| Age at start of pension and 1 July each year | Minimum amount pa |
| Under age 65 | 4% |
| 65 – 74 | 5% |
| 75 – 79 | 6% |
| 80 – 84 | 7% |
| 85 – 89 | 9% |
| 90 – 94 | 1% |
| 95+ | 14% |
NOTE – In 2020, due to the Coronavirus, the Government halved the minimum pension factors for the 2019-20 and 2020-21 financial years.
Your income payments are tax-free once you reach age 60. Tax could be payable under age 60, but you may be eligible for a tax offset of up to 15% on any taxable amount.
Account based pensions are very tax effective as there is no tax on investment earnings, no capital gains tax and no tax on any lump sum withdrawals.
Fixed Term Annuity
You can use your superannuation savings or your personal savings (non-superannuation money) to purchase an annuity. Annuities provide a guaranteed regular income in exchange for an initial lump sum amount, paid to you monthly, quarterly, half-yearly, or yearly, whichever suits your needs best, for the term of the annuity. The return of the Annuity is determined at the commencement of the investment and generally is based on the current available interest rate.
As the name suggests a fixed term annuity will pay you an income for a set period of time, usually between 1 and 30 years. If you live longer than the fixed term, the annuity will stop. When you purchase the annuity, you can choose to receive all or part of your original investment amount back at the end of the term (this is called the residual capital value), however this will reduce the amount you receive each year as income.
Transition to retirement (TTR) pension
A transition to retirement pension is an income stream you can commence while you are still working, using your superannuation, if you are over your preservation age (starting at age 55 and increasing depending on your date of birth).
If you would like to reduce your working hours without reducing your income, then a transition to retirement pension could be the solution, allowing you to top up your part-time income with a regular ‘income stream’ from your super savings.
You can choose to take up to a maximum of 10% of the account balance as at 1st July each year as a regular payment. The normal minimum pension factors apply to TTR pensions (see Account Based Pensions).
With this type of pension, you are restricted from taking lump sum withdrawals. However, when you reach age 65 or stop working, it automatically converts to a normal account-based pension and you are free to take lump sum withdrawals (if you wish).