Super is a hot topic right now, with everyone seemingly having an opinion on what is the ideal amount to live on in retirement – and how to encourage this in an equitable way.
While most of us are unable to influence the financial policy makers, our best tactic is to ensure we are using all the rules and concessions to our own best advantage.
Today in Part Two of our special series on superannuation, we look at how it works alongside the Age Pension, during accumulation, decumulation and if one of a couple is a younger spouse.
We start with the top level rules which apply during accumulation, and then decumulation. Next we share the story of Kumar and Carol which shows how a simple ‘roll-back’ from pension mode to accumulation can result in an extra $15,000 of income from an Age Pension.
Super during accumulation
Accumulation mode is the stage when you are building your retirement nest egg and typically before you reach Preservation Age (typically 60). In accumulation mode your super is paid into your fund by an employer, or yourself in the form of salary sacrifice or voluntary contributions. This is essentially a ‘savings’ phase and all savings in your fund are taxed at 15% on earnings during this time.
There are caps on the amount you can put into super during accumulation. These caps are contribution caps and apply to money from the mandatory Super Guarantee as well as extra contributions as noted above. At some stage, depending upon the trigger, your account will need to be switched to decumulation phase. This is when you start to spend that nest egg and is most commonly achieved by starting an Account-Based Pension.
Super during decumulation
You can switch to decumulation mode as soon as you reach Preservation Age if you wish to move your super to an income stream such an account based (or other type) of pension. Once your account is in an income stream, no taxation will be payable on the earnings.
There are also Transfer Balance Caps on the amount that can be put into an Account Based Pension – currently $1.7 million, but due to be lifted (owing to inflation) to $1.9 million on 1 July 2023.
There are also special downsizer contributions and bring forward rules which allow retirees to shift significant sums into their super without penalty, as long as they comply with the specific rules for these contributions attached to the sale of a family home or one-off transfers within a specific time limit. We explained both the Downsizer Contributions and the Bring Forward rules recently, so you can refer to the full detail using these links.
Age Pension rules and your super income streams:
How do the younger spouse rules work?
Did you know that superannuation and income streams are not treated equally in your Age Pension application?
Could this work for you?
Our advice team recently assisted a couple – Kumar and Carol – who were able to access Age Pension payments after a meeting in which they discovered the rules on how superannuation is assessed.
They had already both left work, were under Age Pension age, and preparing for their Age Pension options at application time, which was within a few months for Carol. Kumar had another two years to go.
They had also both already converted their superannuation lump sums into Account-Based Pensions, providing income payments to cover retirement expenses, while they were too young to qualify for Age Pension.
As Carol is now approaching Age Pension age, while Kumar has two years to go there is the opportunity to take advantage of the eligible partner’s Centrelink rules.
Carol’s superannuation income stream balance is anticipated to reach zero before this time. Kumar’s super is also paying an income stream. Between them, they have approximately $840,000 in investments inside super, plus some additional assets (cash in the bank, car and household contents) totalling assets of just over $1,000,000. This exceeds the Asset Test Threshold for a Homeowner Couple Combined.
This means they will not currently qualify for any Age Pension, at all. Instead, they will qualify for a Commonwealth Seniors Health Card (CSHC), which is a valuable discount card but provides no income payments. They will therefore need to use more of their own money to cover their retirement living expenses.
What are their options?
As Kumar has two years before reaching Age Pension age, we explained how superannuation is exempt as an asset (and also not ‘deemed’) under Age Pension age, unless an income stream commences.
We next explained how there was a simple option to restructure their financial assets in a way which maximises Carol’s ability to become eligible for the highest possible Age Pension payment. Here’s how it works:
| Under Age Pension age | Superannuation (Accumulation) | Account Based Pension (Decumulation) |
| Consequence: | Exempt from Assets & Income Test | Assessable and ‘deemed’ |
We started by using the Retirement Essentials eligibility calculator which showed no Age Pension eligibility based upon their current financial assets, but the possibility of receiving a Commonwealth Seniors Health Card instead.
How we helped:
We explained how it is possible to roll an Account-Based Pension back into the accumulation phase of superannuation, which is an exempt asset if the holder is under Age Pension age. It is important to note that there is a trade-off in this regard involving re-instated tax on investment earnings inside the super fund balance. However, using the calculator, we demonstrated the significant difference this makes to Carol’s Age Pension entitlements and their overall household income.
Our calculators showed a major difference between:
- how they were currently invested in superannuation which provides an income stream, and
- the comparison of what it would look like by restructuring their assets to benefit from Centrelink treatment of exempt assets.
Kumar and Carol have now achieved a significant improvement in their financial position, in particular, their household income. They have moved from not being eligible at all for an Age Pension (and only a Commonwealth Seniors Health Card instead), to being entitled to receive full Age Pension for Carol once she reaches Age Pension age in a few months. That’s a $20,119 per year improvement, (or $774 per fortnight increase) to their household income, until the Kumar also reaches Age Pension age in two years’ time. At this point their eligibility will be reviewed as his superannuation will then become assessable.
Kumar and Carol’s eligibility became possible because they were willing to plan ahead and structure their financial assets and – most importantly – take advantage of Centrelink’s Assets Test treatment of superannuation.
Do you need help to understand more about combining super and Age Pension strategies? Let us step you through the consequences of what this means for your household income during a consultation as we did with Kumar and Carol.
Hi,
Could you please let me know what are your consultation charges
Hi Fernando, thanks for your enquiry. We have multiple consultation types with varying prices depending on what kind of assistance you need. We will send you an email seaparate to this comment explaining your options in more detail and clarifying the price.
Can you also send me the same information?
Hi Georgie, we now have a page on our website which compares the consultations and prices. CLICK HERE to learn more.
Please send me the same info. Thanks
Hi Sue, thank you for joining the conversation! I will be happy to forward you the same email for you to review and book a consultation.
In addition to being able to get the CHSC at 67, both are already eligible for the Lower Income Health Care Card (LIHCC) which brings with it quite a few discounts. Theses are significantly, far more than the CHSC brings. The transfer of money from the super pension account to an SG account also becomes a ‘tax free’ contribution which could save tax for non dependent inheritance purposes, saving up to 17% tax.
I would also like information on costs please
Hi Nadine, thank you for your question! Kumar and Carol booked our ‘Understanding more about super‘ consultation which allowed them to focus on the specific questions they had and provided them with a comparison. This page provides you with an overview and the cost.
If you are simply looking for some guidance or information about the rules and issues to be aware of we have an introductory consultation.
Hi Gary…..what’s an “SG account”….I’ve never heard of “transferring money from a super pension account to an SG account”
Please send me the same info, consultation charges. Thanks
Hi Marissa, thank you for your question! Kumar and Carol booked our ‘Understanding more about super‘ consultation which allowed them to focus on the specific questions they had and provided them with a comparison. This page provides you with an overview and the cost.
If you are simply looking for some guidance or information about the rules and issues to be aware of we have an introductory consultation.
Please send me the same info on type and costs of consultations please.Thanks
Hi Marcia, thank you for your question! Kumar and Carol booked our ‘Understanding more about super‘ consultation which allowed them to focus on the specific questions they had and provided them with a comparison. This page provides you with an overview and the cost.
If you are simply looking for some guidance or information about the rules and issues to be aware of we have an introductory consultation.
Please send me the same info on type and costs of consultations please.Thanks
Hi Ian, thank you for your question! Kumar and Carol booked our ‘Understanding more about super‘ consultation which allowed them to focus on the specific questions they had and provided them with a comparison. This page provides you with an overview and the cost.
If you are simply looking for some guidance or information about the rules and issues to be aware of we have an introductory consultation.
Hi my husband and I are currently living overseas. I would like a consultation on when we can return to AUSTRALIA and be assessed for the age pension. My Husband is 66 years and four months of age, and I am turning 64 in December this year. I feel like our situation is a bit tricky. I struggle with all the terminology and Super jargon that I read. Kumar and Carols story is the first one I understand. Thanking you in advance, Robyn
Hi Robyn, thank you for outlining your situation! We’ll send you an email separate to this comment with your options to book the right kind of consultation.
Can you please send me a list of types of consultations and costs.
Hi Sharon, thank you for your question! Kumar and Carol booked our ‘Understanding more about super‘ consultation which allowed them to focus on the specific questions they had and provided them with a comparison. This page provides you with an overview and the cost.
If you are simply looking for some guidance or information about the rules and issues to be aware of we have an introductory consultation.
Could I be sent the various charges for a consultation on age pension for myself, downsizing, wife not eligible as too young at 57 me at 69 – no super left of mine , wife has approx 250 k and just lost her part time job
Hi Jim, thank you for your question! Kumar and Carol booked our ‘Understanding more about super‘ consultation which allowed them to focus on the specific questions they had and provided them with a comparison. This page provides you with an overview and the cost.
If you are simply looking for some guidance or information about the rules and issues to be aware of we have an introductory consultation.
How are defined benefit schemes valued when using your pension calculator?
Hi Greg, thank you for seeking clarity! Defined benefits are assessed as income based on the gross fortnightly/yearly amount you receive.
Can you please tell me if you have someone available for consultation in Perth?
Hi Azra, thank you for your query! We complete our consultations online as a video meeting so we can help anyone, anywhere in Australia. The only slight impact being in Perth has is that the time slots available for you may be a little different due to the time zone difference. Please CLICK HERE to book a day/time convenient for you.
Hi, I would greatly appreciate if you could provide me with an email advising of the consultation costs, as mentioned in the previous comments. My husband and I are in a similar situation to Carol and Kumar, and would no doubt benefit from a consultation.
Hi Vicki, thanks for requesting further information! We have emailed you the details to book an Understanding More About Super consultation.
How dose Centrelink apply the tax free component on SSS defined pension paid fortnightly.
Hi Barry, Centrelink do factor this in to their calculation and do not simply assess you on the total amount. There can be a restriction of up to 10% depending on how large the tax free component is.
For account based accumulation super funds (ie not defined benefit) is there a prescribed age when you must convert your account balance into a pension income stream?
With the government forcing people to work longer before age pension entitlements many Australians may find themselves having to continue working well into their seventies.
Hi Neil, I can confirm that there is no mandatory requirement to convert your super from accumulation mode into a pension. You can leave it in accumulation for as long as you wish.