Moving money into super post retirement

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.