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
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