Your superannuation strategy doesn’t end when you begin drawing your savings in an Account-Based Pension. It’s common for retirees to keep accumulating super through part-time work or lump sum contributions from windfalls like property sales or inheritance. And while most super contributions can be made until age 75, not everyone knows that once you start an Account-Based Pension (ABP), you can’t contribute to it anymore. But what if you could still roll your ABP back into super, combine it with new contributions, and create an even more flexible strategy?
Here’s how to make the most of your super by combining your existing ABP balance with new super contributions.
Note: Its important to remember if you have a pre 1 January 2015 ABP you will lose grandfathering for Centrelink assessment under Age Pension and CSHC by rolling back the account based pension. Before taking action talk to a financial adviser.
How Account-Based Pensions work
An ABP lets you draw a flexible income from your super savings in retirement. However, these accounts have two main limitations:
- No further contributions: You can’t make additional contributions to an ABP once it’s started.
- Minimum drawdown rules: You must withdraw at least a set percentage of your balance each year, and this percentage increases as you age (see here for the limits per age)
Is there a way back?
While you can’t directly add funds to an existing ABP, you can roll it back into superannuation, add contributions, and start fresh with a new ABP. Here’s how:
- Roll back your current ABP: Move the balance back to the accumulation phase.
- Add new contributions: Consolidate funds, including employer contributions, salary sacrifice amounts, and personal contributions.
- Start a new ABP: Use the combined funds to create an ABP account that better suits your goals.
It’s worth noting that if you no longer have an open super account, you can open one fairly easily these days with your preferred super provider.
One important detail: if you withdraw a lump sum from your ABP (a process called a commutation), it won’t count toward your annual minimum drawdown requirements. Check with your provider before making changes to avoid surprises.
Strategies for combining super and your Account-Based Pension
1. Withdrawal and recontribution strategy
A withdrawal and recontribution strategy can reduce the tax on your superannuation, both for you and your beneficiaries. By withdrawing a lump sum that includes taxable components and recontributing it as a non-concessional (after-tax) contribution, you increase the tax-free portion of your balance and reduce the taxable portion.
This is particularly useful for lowering potential taxes on super death benefits left to non-dependants, such as adult children, which can be taxed at 15% plus the Medicare Levy. For example, after age 60, you can withdraw funds tax-free and recontribute them under the non-concessional cap, helping to minimise ‘death tax’ and protect your estate.
As this strategy involves complex rules, seeking professional advice is recommended.
2. Using downsizer contributions
If you’re 55 or older and selling your home, you can contribute up to $300,000 per person ($600,000 per couple) of the sale proceeds into super as a downsizer contribution.
This option is especially valuable because it doesn’t count toward your regular contribution caps. However, to be eligible, the home must meet specific criteria, including having been your primary residence for at least 10 years.
3. Younger spouse contributions
If you have a spouse below the Age Pension eligibility age, shifting funds to their super account can reduce assessable assets for Centrelink purposes.
This strategy involves withdrawing a lump sum from your super and contributing it to your spouse’s account (subject to their contribution caps). By lowering your assessable assets, you may increase your eligibility for the Age Pension or other government benefits.
4. Making a lump sum contribution from an inheritance
Receiving an inheritance can be a great opportunity to increase your Account-Bassed Pension balance.
For example, if you receive $100,000 as an inheritance, you can contribute it to super as a non-concessional (after-tax) contribution, provided your Total Super Balance (TSB) is below $1.9 million. By doing so, you can generate additional income for your retirement.
5. Using catch-up concessional contributions
If your total super balance was below $500,000 on 30 June of the previous financial year, you may be eligible to make catch-up concessional contributions. This allows you to use any unused portions of the concessional contribution cap from the past five years.
For example, if you’ve fallen behind on contributions, this strategy can let you contribute more than the standard $30,000 concessional cap in a single year. It’s particularly useful for retirees returning to work part-time or those who receive a windfall like an inheritance where both non-concessional and concessional caps can be utilised.
Key considerations
- Age limits and work test: If you’re aged 67–74, you’ll need to meet the work test or use the work test exemption to make voluntary concessional (before tax) contributions to super. Voluntary contributions cannot be made once you turn 75 (except for downsizer contributions).
- Contribution caps: Ensure you stay within annual contribution limits—$30,000 for concessional contributions and $120,000 for non-concessional contributions (or $360,000 using the bring-forward rule).
- Minimum Account-Based Pension drawdown rules: Lump sum withdrawals don’t count toward your annual minimum Account-Based Pension drawdown requirement.
- Provider policies: Always check with your super fund before making changes to ensure your plans stay within their specific rules.
Total Super Balance (TSB)
Your TSB on June 30 of the previous financial year determines your contribution eligibility and access to certain strategies. For example, if your TSB exceeds $1.9 million, you can no longer make non-concessional contributions.
Centrelink implications
Lump sum withdrawals and recontributions can affect your Age Pension eligibility. It’s important to understand how your assessable income and assets may change.
Your retirement, your strategy
By rolling your ABP balance back into super and combining it with new contributions, you gain flexibility and control over your retirement strategy. Whether you’re looking to reduce tax, access government benefits, or leave a legacy for your family, the right strategy can make all the difference.
Another consideration is combining lump sums withdrawals from your super with regular ABP payments to strike the right balance between spending and savings. This is a key aspect of retirement forecasting – helping you determine how much you can safely spend and how long your funds will last.
Interested in how combining lump sums with your ABP can boost your retirement plan? A retirement strategy consultation can help you explore your options, clarify your goals and create a plan that suits your unique situation. Why not book a strategy consultation with Retirement Essentials to see how these strategies can work for you.
What about you? Have you refreshed your Account-Based Pension in retirement?
Could one of these strategies work well for you?
This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.
