Understanding account based pensions

We all know that we need to save for our retirement but what should we do with our super once we retire?

An account based pension is an income stream payable from a super fund. It is purchased with money that you have accumulated in your super and is one of the most popular income streams for self-funded retirees.

How do account based pensions work?

An account based pension allows you to receive regular payments from your super (similar to a salary), while your super remains invested. Investment earnings are added to the account balance and pension payments made from the account reduce the account balance.

Pension payments made to you within a financial year must be at least equal to the legislated minimum amount, however there is no maximum so you can choose how much you want to receive. You can elect to receive payments at regular intervals to suit your lifestyle, either monthly, quarterly, half-yearly or annually. 

What are the benefits of account based pensions?
  • investment earnings are tax free;
  • no tax on pension payments if you are over 60;
  • access your money at any time and make additional lump sum withdrawals if you need to;
  • you can vary your payments at any time subject to legislated minimum amounts; and
  • you can choose how your money is invested.

Please note, your account based pension account balance will fluctuate in line with market performance. The income stream is not guaranteed for life and payments will cease when there is no money left in your account.

Tax on pension payments

The tax treatment for pension payments depends on your age. Pension payments are taxed on a Pay-As-You-Go (PAYG) basis however, part or all of your pension may be taxfree depending on your age, eligibility for tax offsets and the income tax-free threshold, as shown below:

  • 60 or over: generally, no tax is payable on your pension payments or lump sum withdrawals.
  • Under 60: your pension payments may contain both a tax-free and a taxable component and the taxable component is taxed at normal pay as you earn PAYG rates. However, you may be eligible for a 15% tax offset, this reduces the amount you have to pay.

How can EISS help?

The EISS Pension can provide you with a flexible and tax effective investment that converts your super savings into a pension. We offer two types of pension, a standard account based pension and a transition to retirement pension.

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