Superannuation and Pension

This fact sheet is designed to provide you with information on the differences between super and pension products. The information contained in this fact sheet may assist you to plan your retirement even while you are still working.

Superannuation

Superannuation (super) is your savings set aside during your working life to provide you with funds for retirement. Superannuation is compulsory and generally commences with your first job. Employers are required to pay a minimum 9.5% of your before-tax salary into a super account.   This is known as a Superannuation Guarantee contribution (SG contribution). You also have the option of making voluntary contributions (before or after tax) in order to increase your super savings.

The SG contribution rate will remain at 9.5% until 2017 and then from 1 July 2018, an increase by 0.5 percentage points will be applied each year until it reaches 12% in 2022-23 as per the following table:

Year Commencing Employer SG Contribution
1 July 2015 9.5%
1 July 2016 9.5%
1 July 2017 9.5%
1 July 2018 10%
1 July 2019 10.5%
1 July 2020 11%
1 July 2021 11.5%
1 Jul 2022 12%

‘Conditions of release’ apply to your super funds which restricts your access to them. ‘Conditions of release’ include:

  • reaching your preservation age and retiring;
  • reaching your preservation age and beginning a transition to retirement income stream;
  • reaching age 65; or
  • other special circumstances such as:
    • compassionate grounds
    • severe financial hardship
    • terminal medical condition
    • temporary incapacity
    • permanent incapacity
    • temporary residents leaving Australia permanently
    • super death benefits (inheriting super)
    • super less than $200

Your preservation age is determined as per the following table:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

Transition to Retirement

Once you reach your preservation age, you can access a strategy called Transition to Retirement (TTR). The TTR strategy allows you to receive an income stream from your super while you continue working which can allow you to reduce your working hours. Each financial year, you may access up to 10% of the money that was in your super fund at the beginning of that financial year.

This strategy also enables you to save tax and to boost your super savings prior to retirement.

The tax advantage of TTR Pension payments varies with your age:

  • aged 55 to 59, pension payments are taxed at your marginal tax rate less a 15 per cent tax rebate on the taxable portion. You may also have a component which is received tax free; and
  • aged 60 or more, no tax applies to pension payments.

While you are still working, your employer is still making SG contributions to your super fund. You may also choose to salary sacrifice some of your pre-tax income into your super to further boost your super.

Not all funds offer a TTR option, so you may need to change funds in order to access this strategy. Talk to your adviser to determine the best option for you.

Account-based (or Allocated) Pension

If you would still like an income stream when you retire, an account-based pension (also known as allocated pension) may be worth looking at. Your superannuation payment is converted to an account-based pension. Account-based pensions can provide greater tax savings than other retirement strategies.

The benefits of an account-based pension include:

  • You don’t pay tax on investment earnings
  • You can access your money at any time i.e. you can withdraw some or all of the money as a lump sum
  • Your balance will increase as investment earnings are added to your account
  • You don’t pay tax on your income from age 60
  • If you are aged 55-59, the taxable portion of your account-based pension will be taxed at your marginal tax rate. However, the tax payable will receive a 15% offset.
  • You can vary the payments (subject to minimum levels based on your age)
  • You can choose how your money is invested by the fund manager
  • There may be money left over for your estate

Drawbacks include:

  • Your investment earnings (and your account balance) will fluctuate in line with market performance
  • There is no guarantee your super will last as long as you do

The minimum payment that you will need to take is determined by your age, as outlined in the table below:

Age Annual payment as a
% of account balance
55-64 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95+ 14%

The payments can be made monthly, quarterly, half-yearly or annually and in addition, you can withdraw lump sums. The payments will continue until the account balance is exhausted.

Depending on your situation, you may still be eligible for the age pension provided by the government as well as your account-based pension. This will be dependent on an asset test. Check with Centrelink or your financial adviser to determine if your income will affect the age pension.