Last week Laura asked us a question, which on the face of it, is quite straightforward:
‘I have switched my super to pension mode and so I now have an Account-Based Pension. Does this mean I can’t move any more money into super?’
Well it might, but it probably doesn’t is the quick answer to Laura’s question.
But that’s far from helpful, so we set about unpacking this question in order to give Laura useful information that she can use when deciding. And to share with all our members a basic overview of what happens with super contributions once you have technically ‘retired’.
It’s little wonder in recent AMP research that 75% of Australians aged over 50 believe our retirement system is too complex. Of course it is.
On the face of it, you would imagine that retirement saving, investment and drawdown is a linear process.
But that’s far from the case.
It’s easy to believe that most people work, save money in super and then, when they reach a certain age, they start to spend these savings. But it’s not a one-way street.
Retirement is a more fluid life stage with people moving in and out of work, relationships, homes and so their needs can fluctuate accordingly. Rules on retirement income are similarly fluid, with lots of caveats.
Today we consider the ways retirees can access their super and how they might continue to contribute, even after they have started spending these savings. Here’s our plain English response to Laura’s question.
What is the ‘retirement’ phase of super
This refers to the stage at which you change the nature of your savings from ‘accumulation’ to ‘decumulation’. To do so, you must have:
- reached Preservation Age (usually 60) and
- meet the required conditions of release or
- reached 65.
Moving money from an accumulation account into (usually) an Account-Based Pension (ABP) can typically be done within your own super fund. You do not have to move all of your money into the Account-Based Pension – you can leave a portion in accumulation.
The benefits of moving some savings into an Accounts Based Pension mean you are moving this money from an environment in which you are taxed on earnings at 15% to a product where the earnings are tax free.
BUT, you have to withdraw a minimum amount per year.
You cannot put more money into an existing Account Based Pension. But you can still contribute to your accumulation account.
So the answer to Laura’s question is that yes, it is possible to contribute to super even though she has started an Account-Based Pension. She cannot contribute to the Account Based Pension account, but assuming she still has some funds in her accumulation account she can put extra money into this account. She can also start up another accumulation account. This is worth thinking about for those yet to reach Age Preservation age. Leaving some money in accumulation means you have an account ready for extra contributions should you decide to do so. It also means that even though you can’t contribute more to your current Account Based Pension you can also set up a second Account Based Pension later if you haven’t already exceeded your transfer balance cap. So you can’t contribute further to an existing Account Based Pension but you can start a new one. Some rules just don’t seem to make sense. Our advisers can help you with this.
Post-retirement contributions limits
As with pre-retirement super savings, there are limits on the amount you can contribute.
Here’s a brief summary of the main rules:
If you are planning on working:
You will receive 11% of your salary in the form of Superannuation Guarantee contributions made by your employer. This applies to all eligible employees and now includes those whose salary or wages are less than $450-a-month.
Carry-Forward contributions
You can use Carry-Forward concessional contributions. This is often used by people towards the end of their careers who are still earning an income but might have paid off the mortgage. They can use these provisions to boost their super before retirement.
The amount of unused cap amounts you will be able to carry-forward depends on the amount you have contributed to the previous five years. You also need to meet two other requirements to be able to use the carry-forward arrangement.
Using Bring Forward rules to make higher non-concessional contributions to super
These are available to everyone under age 75 who meet the eligibility requirements. If you are eligible you can contribute up to $330,000 to your super in a single year. This is often used by people who have come into additional money such as an inheritance or through the sale of a property or investment. .
Downsizer contributions
These are now available to those aged 55 and over, subject to meeting other conditions. You can move up to $300,000 per individual from the sale of your family home into super without affecting other contribution caps. There is no upper age limit for downsizer contributions.
Age limits
The above contributions are all available until age 75, with the exception of the downsizer contribution which has no upper age limit.
Before deciding if you would like to contribute more to your super, it’s important to take the time to consider why you are doing this, how much is appropriate, and how to time the contribution to receive maximum benefit.
Weighing up the pros and cons
Deciding how much to contribute, withdraw and re contribute to and from super is a BIG call. Many commentators point out the tax free status of Account Based Pensions – but often there are other considerations which may outweigh a decision to move most of your funds across. Obviously there are many rules and limits which may or may not apply, so learning more about super and how it can be best managed in your own situation before making a final decision is smart.
Do you find these rules confusing as well?
Are they helpful for those who move between retirement and work?
Or just adding further complexity?
Our understanding super consultations are “super” helpful in bringing all this together.
I have $600k in a fixed term account with the nab, it will mature in January, it was earning 4%, I would like to know what to do with it next.
Hi Wayne, great to hear from you. Our advisers can help identify your intentions for these funds, discuss your options and then analyse your possible solutions in one of our General Advice Consultations. You are able to schedule one of these here. We look forward to meeting with you. Thanks, Megan
Recently I applied to draw down $35,000 from my income stream account. Unfortunately the fund processed it twice, and so my balance was down $70,000. After several phone calls, the second $35,000 was applied to my small accumulation account. I had asked for that second transaction to be reversed / not handled in this way. Will I be taxed on the $35,000 the fund has put into my accumulation account? As you can imagine, this whole saga has been very distressing. There has been no further communication from the fund.
Hi there. I’m in my early 60s and have many friends of a similar age that are looking to retire or have retired but are scared to invest money from redundancy, long service entitlements, or inheritance etc into super, because they believe you can’t get your hands on money in super until they reach Government retirement age. I am drawing an account-based pension at 4% and can take a lump sum for a holiday or car etc. Too many aren’t aware that money in super after 60 in most cases is totally accessible and tax free. I feel if they were better educated, more people would look to invest in super. They have spent their whole working lives putting money into super believing that it is stuck there and inaccessible when this is simply not the case.
Hi Mark, I was told by Centerlink that if I draw down any funds from my transition to retirement account on a regular basis, that it would be counted as income and I would pay tax on it, if it is higher than $284 per fortnight.
Do you know the difference between a larger sum for travel and the smaller amount per fortnight?
Perhaps someone from Retirement Essentials may comment also please.
Hi Anne, that’s definitely a question that confuses a lot of people. I’ll try and answer with some higher level information but if you wish to discuss your particular situation in more detail you may be best to book a consultation with us. It seems that there are different rules you are thinking of that might be getting confused. Tax rules regarding superannuation, and Centrelink assessment of superannuation are different. Firstly from a Centrelink perspective it depends on your age, your Centrelink eligibility, and if you have a spouse with Centrelink eligibility. If you are under age pension age (67 y.o), funds in your normal ‘accumulation’ super account aren’t assessed for calculating an older spouse’s age pension, or for your assessment of other Centrelink entitlements you might have access to. However, if you move the funds to an income stream product (i.e. you start drawing a regular income) then the funds will be assessed. Note however it is not the amount that you draw out as income that is assessed but the ‘deemed’ income on the balance. We provide an example of deeming on our website here.
Tax is different though. In most circumstances if you are over age 60 you would not pay tax on any income you draw from your super, but there are some exceptions. Without more specific detail it’s hard to comment further, but I will note that with any income stream if you choose to take either one amount once a year or smaller amounts each fortnight should not change the assessment for Centrelink purposes. If you want to discuss your situation one-on-one I suggest a General Consultation for some further guidance and support, which you can book by clicking here. Best wishes, Nicole.
My wife passed away in May 2023 and she was employed. I am currently not working and applying for the pension. I have no income and this is why I am applying for the pension. Why do they make it so difficult. I am 72 years of age and in need of the pension. I have no superannuation. Can you urgently advise
Hi Peter, my condolences on your wife’s recent passing. I checked and can see you have purchased our service recently so I have asked the agent in charge to please review your claim today and contact you with an update.
NOW THATS A GOOD SYSTEM, people can save their money and use the interest money. I wish I had some money I would put in my super fund.
Could you explain the pension education supplement?
I am studying a Masters degree on line and being charged fees to do so. As I am on the AP I can’t see any way to pay it back. I love the intellectual stimulation – it is keeping my mind alive. I don’t want to leave a big debt to my daughters when I pass on. Any advice welcome.
Hi Marcia, thank you for reaching out! As the pensioner education supplement is not payable to people receiving the Age Pension it is not something we are fully across. You can read more about it on Centrelink’s website HERE.
I have just turned 60 and working full time. Can I use the Transition to Retirement Strategy to open a Account based Pension account and transferring funds from the Accumulation Account to the Pension Account and then drawing from the Pension Account and salary sacrifice for tax savings. Can Retirement Essentials assist in setting this up and providing guidance.
Hi Adil, thank you for seeking further assistance! Our advisers definitely can help you understand the pros/cons of this strategy and also understand how it might pan out in the long run as opposed to other options you have. To make a booking, please CLICK HERE.
Can you create a superannuation fund at age 73 if you have never had one ? as I will now loose the pension due to inheritance
Hi Jen, yes you can open a new superannuation account at age 73.
Thank you – I retired and over 65 but under 75 and now my SMSF is in pension mode. I have been receiving a small Age Pension. I have got new job! Can I put up to $33,000 of my net salary into my Accumulation fund under the ‘carry forward to make non-concessional contributions. Would it be worth it to do so?
Hi Joseph, great question! Our advisers can definitely help you understand the rules around additional contributions to super. CLICK HERE to make a booking.