Type of Pensions

1) Account-based pensions (ABP)

Member has to satisfy the condition of release (See below) in order for ABP to commence. Each account based pension has an account balance and therefore each member has a set amount invested in the fund under their name.

  • An investment account is set up with this money from which you draw a regular income. A minimum payment must be made at least annually.
  • There is no maximum limit on the amount withdrawn each year.
  • Pension will be paid until the death of the member or the account balance runs out, whichever happens first.
  • ABP is flexible, you can withdraw some of the money (above the minimum amount) or as a lump sum.
  • For member age 60 and over, all pension payments are tax free.
  • For member age under 60, all pension payments from the taxable component are taxable on member’s hand.
  • Member reached their preservation age but has not satisfy the condition of release, they are not allowed to commence the ABP, however, they can access their super through Transition to retirement.

2) Transition to retirement (TTR)

TTR allows member who reaches their preservation age (See below) to access their super without the need for retirement. TTR is an account-based pension, it allows member to cash up to 10% of the account balance in each financial year.

Trustee is required to withhold PAYG from the taxable component of the pension payment if the member is less than age 60, member would allow 15% tax offset against their personal income. Pension payment will be tax free when the member reaches age 60.

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

Minimum pension payment

Members are required to cash out the minimum percentage of their account balance based on their age:

Age Percentage of account balance
Under 65 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95 or more 14%

Breach of preservation rule

Consequences of breaching the preservation rule, e.g. cash out more than 10%, can be:

  • Fine up to 100 penalty units ($11,000);
  • Lose the complying status;
  • Earnings will be taxed at highest marginal rate;
  • Trustee will be disqualified from managing the fund and therefore be wound up;
  • Pension benefit that paid to members will be taxed at normal marginal rate.

Condition of release

For member to access their Preserved benefits and Unrestricted non-preserved benefits, they must satisfy the following condition of release:

  • Retirement
  • Attaining age 65 or more
  • Terminating gainful employment after 1 July 1997 – benefits less than $200
  • Terminating gainful employment – benefits of $200 or more
  • Permanent incapacity
  • Temporary incapacity
  • Severe financial hardship
  • Compassionate grounds
  • Temporary residents departing Australia
  • Transition to retirement (attaining preservation age)
  • Terminal illness or injury
  • Rollovers and transfers

For detailed explanation of each category of condition of release, please visit http://www.ato.gov.au/corporate/content.asp?doc=/content/46427.htm&page=20

3) Allocated Pension (AP)

Allocated pension only available prior 20 September 2007. Allocated pension prior to 1 July 2007 are allowed to transfer to ABP without commuting the existing pension. If the superfund decide not to commute, the allocated pension will continue to be paid based on the existing pension valuation factors.

An allocated pension is an account that will provide you with a regular income stream from your superannuation fund. Each allocated pension has an account balance and therefore each member has a set amount invested in the fund under their name. Allocated pension is available once you’ve reached age 65 and retired. Other benefits as follows:

  • Payments made from allocated pension are calculated based on valuation factors as defined by SIS act.
  • Earnings on the allocated pension balance is tax free.
  • Member under 60 – if members have reached their preservation age, they can choose to roll the super into a pre-retirement allocated pension and withdraw pensions. Pension payments from the allocated pension account are taxed at ordinary marginal tax rates,
  • Member age 60 or above – All contributions and pension payments are tax free.

4) Market Linked Pension (MLP)

A Market Linked pension provides you with a regular income stream once you’ve reached age 65 and retired:

  • Benefit payments are calculated using a set formula detailed in the SIS Act which is calculated based on average life expectancy for member’s age and sex. From 1 January 2006 annual pension payments can be paid up to maximum 10%;
  • Member has limited access to the fund balance, they generally cannot make any cash withdrawals apart from the normal pension payments.

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