Account-based pension

An account-based pension is an income stream purchased with a lump sum from your superannuation fund. You must meet a condition of release such as reaching your preservation age (see below) or starting a TTR pension. From 1 July 2017 the total amount of superannuation that can be transferred into pension phase is capped at $1.6 million (The Transfer Balance Cap – TBC). This value is net (not gross) and so any loans like a limited recourse loan can be deducted.

Members with a balance in excess of the TBC will need to either:

  • transfer the excess amount to a superannuation account in accumulation phase; or
  • withdraw the excess amount from their account.

Any excess over the TBC will be taxed as excessive, non-concessional contributions.

The TBC will be indexed in $100,000 increments in line with the consumer price index (CPI) and is currently $1.9 million. Where a member has used all the TBC then indexation no longer applies. If only  a proportion of the TBC has been used then the unused portion will continue to be indexed.

Equities held in pension phase are valued at their cost base on 30 June 2017 which could be lower than the market value. This means there could be CGT relief that can be applied to an investment gain in the fund.

Preservation age

Date of birthPreservation age
Before 1 July 196055 years
1 July 1960 to 30 June 196156 years
1 July 1961 to 30 June 196257 years
1 July 1962 to 30 June 196358 years
1 July 1963 to 30 June 196459 years
From 1 July 196460 years

How much has to be withdrawn?

For the 2019-20, 2020-21, 2021-22 and 2022-23 financial years the minimum drawdown is: 

AgeAnnual payment as % of account balance
55—642%, changing to 4% for the 23/24 tax year
65—742.5%, changing to 5% for the 23/24 tax year
75—793%, changing to 6% for the 23/24 tax year
80—843.5%, changing to 7% for the 23/24 tax year
85—894.5%, changing to 9% for the 23/24 tax year
90—945.5%, changing to 11% for the 23/24 tax year
95+7%, changing to 14% for the 23/24 tax year

To help manage the effects of COVID-19, the Government temporarily reduced superannuation minimum drawdown rates for account based pensions by 50 per cent. This reduced the need for retirees to sell investment assets to fund minimum drawdown requirements.

You can withdraw lump sums (unless it is a TTR pension) at any time or roll the pension back into accumulation phase. The pension is not guaranteed and will be paid until it is exhausted. If you die the pension will be paid to;

  • Your estate, or
  • your beneficiaries, or
  • the reversionary beneficiary (if any).

If the reversionary beneficiary is a child they will receive the payments until turning 25 and then the balance will be paid to them as a lump sum.

A spouse or dependent may receive the benefit as a pension or lump sum. Non-dependents must take the benefit as a lump sum.

The pension is assessed by Centrelink.

Other benefits include;

  • No tax is paid on the pension unless it is a TTR pension in which case 15% will be paid.
  • Payments are received tax free after age 60.
  • Between ages 55-59 the taxable portion is added to assessable income with a 15% offset.

Members need to be sure there is no conflict between any binding nomination form and the reversionary beneficiary of the pension.

Consolidating super

There are many reasons to consolidate your super into a single fund but fees and the convenience of monitoring a single fund are dominant motivations.

Reduce Fees

Multiple funds means duplicated fees. Typical fees are;

  • Member fees – these are administration fees that will be duplicated in multiple funds.
  • Investment fees (MER) – these are the fees charged to invest your funds usually a percentage of the balance. This is often the biggest cost.
  • Contribution fees – these are the fees charged to collect and invest fees. They would be duplicated in multiple funds.
  • Adviser fees – these are the fees paid to an adviser for personal advice. They would be duplicated in multiple funds.
  • Insurance premiums – these are the premiums paid for your insurance cover in the fund.
  • Other fees – there could be other fees such as establishment fees, withdrawal fees, exit fees, performance fees, switching fees and more.

Over 30 years, a 1% reduction in fees results in a 20% increase in benefit.

Easier to monitor super

Multiple funds means multiple member statements detailing contributions, performance and fees. The member then has to collate all this information to get an accurate picture.

Consolidating all your funds into a single fund means there is only one member statement which will give an accurate picture of your superannuation arrangements.

Overall spring clean

Consolidation is an opportunity to give your super a “spring clean” and address the other important elements of your super.

  • Insurance. Which fund offers the best cover at the best premium? Be sure you will get cover in the new fund before switching.
  • Returns. Past performance is no guarantee of future performance but do you expect better performance in any fund?
  • Asset mix. The new fund must have an asset mix that matches your risk profile.
  • Costs. Which fund has the better cost structure.
  • Service. Do any of the funds have a service benefit you value like on-line switching?

If none of your funds have the cost/benefits you are looking for you can rollover your funds into a new one.

Downsizing contributions

From 1 January 2023, if you are 55 years old or older and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home.

Your downsizer contribution is not a non-concessional contribution and will not count towards your contributions caps. The downsizer contribution can still be made even if you have a total super balance greater than $1.7 million.

The downsizer contribution will count towards your transfer balance cap, currently set at $1.6 million. This cap applies when you move your super savings into retirement phase.

You can only access the downsizer scheme once and each spouse can access the $300,000.

Downsizer contributions are not tax deductible and will be taken into account for determining eligibility for the age pension. There is no requirement for you to purchase another home.

What are the requirements?

  • you are 55 years old or older at the time you make a downsizer contribution (there is no maximum age limit)
  • the amount you are contributing is from the proceeds of selling your home where the contract of sale exchanged on or after 1 July 2018
  • your home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale
  • your home is in Australia and is not a caravan, houseboat or other mobile home
  • the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
  • you have provided your super fund with the Downsizer contribution into super form either before or at the time of making your downsizer contribution
  • you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
  • you have not previously made a downsizer contribution to your super from the sale of another home.

Employer contributions

Superannuation Guarantee

Australian law requires all employers to provide a minimum level of superannuation for their employees. For each quarter of a financial year, an amount equal to the prevailing Superannuation Guarantee (SG) rate of each eligible employee’s ordinary time earnings (OTE) must be paid to a complying super fund. Employer contributions include all deductible employer super contributions made by an employer for the benefit of an employee and are taxed at 15%.

The limit is indexed to AWOTE and changes every financial year. For 2023 – 2024 the maximum superannuation contribution base is $62,270 per quarter. So if an employee’s earnings exceed $62,270 for the quarter, employers do not need to pay SG contributions on their earnings above this limit. 

If your adjusted taxable income for a year plus your super contributions equal or exceeds $250,000, additional tax is calculated at 15% of the lower of:

  • Concessional Contributions received by your fund during the financial year or;
  • Amount of Concessional Contributions above the $250,000 threshold.

The SG payment rate is legislated to slowly increase to 12% by 1 July 2025 on the following schedule:
Financial yearSG rate (%)
2025-26 and future years12

As from July1 2023 employers must pay 11% of each eligible employee’s ordinary time earnings (OTE).

An employer has to pay the required rate by the quarterly date or be subject to the Superannuation Guarantee Charge (SGC) which is a penalty to the tax office. The SGC includes the SG owing, interest on the outstanding SG and an administration fee.

In most cases the SG is paid into the complying fund chosen by the employee but in some cases it is paid into a fund dictated by a workplace agreement or public sector fund run by state or Federal government. If an employee doesn’t specify a fund then the SG will be paid into a default fund with a MySuper option. MySuper is a low cost fund with restricted options.

Employees earning less than $450 per calendar month and those under age 18 working less than 30 hours a week used to be exempt, but are now included.

From 1 July 2017 concessional contributions were limited to $25,000 for all groups. This has increased to $27,500 from 1 July 2021. If your super balance is below $500,000 you can carry forward any unused portion for up to 5 years.

SG contributions are currently taxed at 15%. If your combined incomes are over $250,000 then these contributions may be taxed at 30%.

For example;

John earns $50,000 pa. For the 2022-2023 tax year his employer must contribute $50,000 * 10.5% ($5,250). 15% tax will be deducted and so $4,462 will be paid into his superannuation account (less fees).

The concessional contributions cap (which includes SG and salary sacrifice contributions) is $27,500 from July 1 2022. From 1 July 2023 you can use up to 5 years worth of any unused portions of your concessional cap if the total of all your superannuation funds is under $500,000 (this excludes super in pension phase). The unused portions start from 1 July 2018 and would allow a member to exceed the $27,500 cap.

Government co-contributions

The government co-contribution helps low and middle-income earners boost their superannuation by making a contribution of up to $500 pa. There is no need to apply. If you are eligible and the fund has your tax file number the government will automatically pay it into your account.

In order to qualify you must;

  • Make personal contributions to a complying super account.
  • Have total income less than $58,445 (2023-2024 tax year).
  • 10% or more of your total income must come from eligible employment or carrying on a business.
  • Be less than 71 years of age.
  • Not be holding a temporary visa.
  • Lodge a tax return.
  • Have a total superannuation balance less than the transfer balance cap ($1.6 million) at the end of 30 June of the previous financial year
  • Not have contributed more than your non-concessional contributions cap ($110,000).

Income threshold test

To receive the co-contribution, your total income must be less than the higher income threshold for that financial year.

Your total income

For the purpose of this test your total income for the financial year is:

  • the total of your
    • assessable income
    • reportable fringe benefits total (RFBT)
    • total reportable employer super contributions reduced (but not below zero) by any excess concessional contributions
  • minus your
    • assessable first home super saver released amount
    • allowable business deductions.


The lesser of;

  • The ‘Maximum super co-contribution’ for the year of $500.00
  • Your maximum co-contribution amount
  • The amount of your ‘Eligible personal super contributions’ multiplied by 0.50

For example;

John earns $50,000 from eligible employment and makes personal (after tax) contributions of $3,000 to his complying fund. Because his eligible income is below $58,445 and his contribution exceeds $500 he will get a $250 government co-contribution.

If, for example, he had only contributed $400 then $200 would have been the maximum government co-contribution.

How does super work?


Contributions accumulate together with growth on those contributions. The more you contribute and the better growth you enjoy the more you will have to retire on.


Compound interest (interest on interest) is the biggest driver of your super balance. The better your fund performs, the more retirement funds you will have. #growth

Tax on contributions

Deductible contributions (generally employer contributions) are taxed at 15% unless your income exceeds $250,000 in which case they are taxed at 30%. Income within the fund is taxed at 15% while it is in accumulation phase.

Tax on final accumulation

After retirement any super rolled into pension phase (maximum of $1.6 million) is not taxed at any point. Funds remaining in superannuation will have their income taxed at 15%. Withdrawals are tax free.


Fees within your superannuation fund will also reduce the final amount available at retirement.

How long will my super last?

The table below is the ASFA (Association Of Superannuation Funds of Australia) suggestion of what is “enough super”.

ASFA Retirement Standard – September Quarter 2022

Annual living costsWeekly living costs
Couple – modest$44,034$846
Couple – Comfortable$68,014$1,307
Single – Modest$30,582$588
Single – Comfortable$48,266$928
Note: The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement

Enough super?

Assuming an average salary of $74,724 pa, and 30 years to retirement, employer contributions (9.5% of salary) alone would generate $730,393 if growing at a net rate of 7% pa. If inflation averaged 2.5% during this time the real purchasing power of the final amount would be just $341,739. Assuming a net income of 5% in retirement, your super would generate $17,087 pa.

In order to meet a modest goal of $23,662 you would need to make salary sacrifice contributions of $3,000 pa. for the full 30 years. To obtain a “comfortable” goal of $42,861 you would need to salary sacrifice $11,900 pa till retirement.

The crucial factors are;

  • Time. The longer you contribute and enjoy growth the better.
  • Returns. The higher the returns the better. If returns were a net 9% instead of 7% in the example above you could achieve a “comfortable” retirement by salary sacrificing just $5,400 pa.
  • Inflation. Inflation can ravage your savings. If inflation was 6% pa instead of 2.5%, the real purchasing power would be just $114,128 instead of $341,739.
  • Contributions. The more you contribute the better and salary sacrifice contributions are a tax-effective way to do this.

How much investment risk can you take?

Investment risk is the degree to which your investment will experience volatility and how comfortable you are with this. Shares for example are far more volatile than cash or fixed interest and so the greater proportion of shares in your portfolio the more volatile it will be. Volatility can include periods of negative returns which can prove distressing to investors.

Most periods of negative returns are followed by extensive periods of positive growth which more than replaces the amount lost. If however you are forced to withdraw money for living expenses during a time of negative growth your capital may be depleted to a point that you can no longer live off growth alone and will be forced to withdraw from a reducing capital base.

If you have sufficient capital however you can continue to withdraw living expenses during the period of negative growth without reducing your capital to the point it can no longer generate enough income to meet your needs.

Essential questions are;

  • What are your goals and objectives?
  • What is your time-frame?
  • What are your expenses?
  • What are your liquidity requirements?
  • What are your age?
  • What is your ability to withstand periods of low or negative growth?

Personal contributions

Who can make personal contributions?

  • From the 22/23 tax year, anybody over the age of 18 and under 75 can make personal contributions without satisfying the work test.
  • After age 75 your fund can still accept compulsory contributions.
  • Before you can claim a deduction for your personal super contributions, you must give your super fund a Notice of intent to claim or vary a deduction for personal contributions (NAT 71121) and receive an acknowledgment from your fund.

Benefits of personal contributions?

Personal (after tax) contributions can be used to boost your superannuation. Benefits of this strategy are;

  • The contributions boost your retirement savings.
  • You can generally contribute up to $110,000 in after-tax contributions each financial year without having to pay extra tax.
  • If there are excess before-tax contributions in your super, they count towards your after-tax contributions cap as well.

For example;

John contributes $330,000 into his super fund using after tax money. As long as this is made no more frequently than every three years he will not have exceeded the contribution cap. If he wants to contribute every year he must make sure that the total in any rolling three year period does not exceed $330,000.

Bring forward unused cap amounts

Your total super balance, as at 30 June of the previous financial year, must be less than your personal transfer balance cap (currently between $1.6 and $1.9 million depending on your circumstances).

Total super balance on 30 June 2023After-tax contributions cap for the first yearBring-forward period
Less than $1.68 million$330,0003 years
$1.68 million to less than $1.79 million$220,0002 years
$1.79 million to less than $1.9 million$110,000No bring-forward period, general after-tax (non-concessional) contributions cap applies
$1.9 million and overNilN/A

Salary sacrifice contributions

Salary sacrifice contributions involves sacrificing salary for super contributions. This has the following consequences;

  • Your salary decreases and so does your taxable income. You pay less tax.
  • The contribution is taxed at 15% and so there may not be much benefit for those on low incomes ($37,000 and below) as their salary may have been taxed at a lower rate had they not sacrificed it.
  • If your income plus your before-tax super is over $250,000 then contributions may be taxed at 30% making the strategy more challenging.
  • If you are on a higher tax bracket there is an immediate gain as a result of the income being taxed at 15% instead of their higher marginal rate.
  • The contributions boost your retirement savings.

How much salary can I sacrifice?

You can contribute and deduct $27,500 pa. This includes your SG contributions. If your super balance is below $500,000 you can carry forward any unused portion for up to 5 years.

I am self employed. Can I salary sacrifice?

Yes, you can make pre-tax contributions in exactly the same way and to the same extent as an employed person. That means you can contribute and deduct (for tax purposes)  $27,500 pa.

For example;

John earns $70,000 pa and makes a salary sacrifice contribution of $10,000. The net benefit is as follows;

 No salary sacrificeWith salary sacrifice
Gross income$70,000$70,000
Salary sacrifice$0$10,000
Taxable income$70,000$60,000
Estimated Tax$13,537$10,187
Net income$56,453$49,813
Net benefit0$1,850

The net benefit is calculated (22/23 tax tables) as the net salary sacrifice contribution (less 15% tax) less the drop in net income. That is ($10,000 * .85) – ($54,653 – $48,543)

Tax on excess contributions

If you exceed the concessional contribution cap the excess is added to your assessable income with a 15% offset to acknowledge 15% has been paid on the contributions. You can release up to 85% of your excess contributions as an alternative strategy.

Carry forward unused concessional

You are able to carry forward your unused concessional contributions cap space amounts from 1 July 2018  if you have a total superannuation balance of less than $500,000 at the end of 30 June in the previous year and you made concessional contributions in the financial year that exceeded your general concessional contributions cap. Unused amounts are available for a maximum of five years and will expire after this.

Spouse contributions

Spouse contributions

If your spouse has assessable income below $37,000 (plus report able fringe benefits) you can make contributions to his or her superannuation and receive a tax offset of up to $540 for those contributions. It phases out at $40,000.

You can’t contribute more than your partner’s non-concessional contributions cap, which is $110,000 per year for everyone. However, if your partner is under 75, you may be able to contribute up to three financial years of this cap in the one year (under bring-forward rules) which would allow a maximum contribution of up to $330,000.

Essential conditions are;

  • you contribute to the eligible super fund of your spouse, whether married or de-facto, and
  • your spouse’s income is $37,000 or less.

You will not be entitled to the tax offset when your spouse receiving the contribution:

  • exceeds their non-concessional contributions cap for the relevant year, or
  • has a total superannuation balance equal to or exceeding the general transfer balance cap ($1.9 million for 23/24 tax year) immediately before the start of the financial year in which the contribution was made.

The tax offset amount will gradually reduce for income above this amount and completely phases out when your spouse’s income reaches $40,000.

The following eligibility requirements remain in place before and after 1 July 2017:

  • both you and your spouse must be Australian residents when the contributions are made
  • the contributions must not be made to satisfy a family law obligation to split contributions with your spouse
  • the contributions must be made to a complying superannuation fund or a retirement savings account on behalf of your spouse
  • you and your spouse must not be living separately or apart on a permanent basis when the contributions are made
  • the contributions must not be deductible to you.

Transition to Retirement (TTR)

A transition to retirement strategy allows someone who has reached preservation age and still working, to access their superannuation by buying a pension. This pension cannot be converted back to a lump sum. The additional income can be used to either boost their superannuation or to supplement income should they choose to work fewer hours and therefore earn less income.

Strategy #1: Boost your superannuation

Buy an “Account Based Pension” and draw down between 4% and 10% of the account balance. From 1 July 2017 the interest free concession has been lost and earnings are taxed at 15%. The $1.6 million cap will not apply to TTR pensions.

You then make a salary sacrifice contribution to your super fund and use the pension to replace the salary you have forgone.

Case study

 Current ($)With TTR strategy ($)
Gross salary$100,000$100,000
Less Salary sacrifice contribution$0-$25,500
Plus TTR pension$0$20,600
Taxable income$100,000$95,100
Tax plus Medicare-$26,947-$25,134
Less pension offset$0$3,090
Net tax-$26,947-$22,044
Disposable income$73,053$73,056
SG contributions$9,500$9,500
Salary sacrifice contribution$0$25,500
Investment returns$18,000$18,000
Less 15% contributions tax-$1,425-$5,250
Less Pension drawdown$0-$20,600
Less Tax on earnings-$1,440-$1,440
Benefit to super in yr 1 $1,075

Strategy #2: Use the pension to supplement your salary

If you decide not to reinvest the pension but to use it to supplement a reduced salary it could look like this;

 Current ($)With TTR strategy ($)
Gross salary$100,000$70,000 ($30,000 less)
Less Salary sacrifice contribution$0$0
Plus TTR pension$0$24,078
Taxable income$100,000$94,078
Tax plus Medicare-$26,947-$24,637
Less pension offset$0$3,612
Net tax-$26,947-$21,025
Disposable income$73,053$73,053


You would only need to withdraw $24,078 to replace the $30,000 drop in salary.

From 1 July 2017 the interest earned on TTR balances increased from 0% to 15%. This will be offset by any franking credits. On top of this, the concessional cap has reduced to $27,500 a year so people receiving a TRIS will be taxed more and many will be forced to contribute less.

The loss of exemption on fund earnings does not affect the pension itself which will continue to enjoy the 15% offset.

It is advisable to obtain the assistance of a qualified financial adviser to choose the best pension, draw down amount and salary contribution.

Transfer Balance Cap (TBC)

Total Super Balance (TSB)

Your total superannuation balance (TSB) is the sum of all your accumulation and pension phase balances as at June 30 each year. It must be under $1,900,000 as at June 30, 2023 if you want to make personal after-tax (non-concessional) contributions. You can still make concessional contributions (SG, salary sacrifice and personal tax-deductible contributions) regardless of your TSB up until the age of 75.

Transfer balance account

Your transfer balance account records how much super you have transferred into retirement phase, less any amounts in retirement phase you have taken as lump sums.

Your transfer balance account is credited with money transferred into a retirement phase account and debited when you commute or remove money from retirement phase.

The balance of your transfer balance account is compared with your personal transfer balance cap to determine whether you have exceeded your personal Transfer Balance Cap (TBC), your available cap space and if you’re entitled to proportional indexation.

Transfer Balance Cap (TBC)

A transfer balance cap is a lifetime limit on the amount you can transfer into one or more retirement phase accounts which are tax free.

When you start a retirement phase income stream, you will have a personal TBC equal to the general transfer balance cap at that time.

Starting on 1 July 2021, the general transfer balance cap of $1,600,000 has increased (indexed) in $100,000 increments to $1,900,000. Next year it will be $2,000,000 for those who have never started a super pension.

Everyone will create a personal TBC when they start a superannuation pension which applies only to them. The general TBC is currently $1,900,000 and anyone who has never started a super pension would be entitled to a $1,900,000 TBC.

In this situation, the ATO uses information reported by your funds to calculate your personal transfer balance cap by:

  • identifying the highest ever balance in your transfer balance account
  • using that to work out the unused cap percentage of your transfer balance account
  • multiplying your unused cap percentage by the general transfer balance cap index increase.
For example,

If you purchased a pension for $1,200,000 when the TBC was $1,600,000 in 2021, you would have used 75% of the TBC ($1,200,000/$1,600,000), so 25% of the unused (new) TBC is available – (($1,900,000-$1,600,000) x 25%=$75,000). Your personal TBC would now be $1,675,000 ($1,600,000 + $75,000).

What fees do I pay in my super?

You are probably paying some or all of the following fees.

  • Member fees – these are administration fees that will be duplicated in multiple funds.
  • Investment fees (MER) – these are the fees charged to invest your funds usually a percentage of the balance. This is often the biggest cost.
  • Contribution fees – these are the fees charged to collect and invest fees.
  • Adviser fees – these are the fees paid to an adviser for personal advice.
  • Insurance premiums – these are the premiums paid for your insurance cover in the fund.
  • Other fees – there could be other fees such as establishment fees, withdrawal fees, exit fees, performance fees, switching fees and more.

There is a wide discrepancy in total fees. A difference of 1% can mean a reduction in the final value of 20%.

Member fees

Often members in the same fund pay a different percentage with those holding lower balances paying a higher percentage but lower fee. For example, 1% on a $100,000 balance is $1,000. A 0.5% fee on a balance of $1,000,000 is $50,000. Some funds have a cap on the amount of fees a member can pay.

Investment fees (MER)

These are the fees paid to the investment manager and can include a performance fee where some of the growth ahead of a specific return is retained by the manager. This is usually the biggest fee and returns usually make the biggest difference to retirement values.

Contribution fees

Some funds charge an extra fee to collect and forward the contributions to the investment manager.

Switching fees

Some funds charge a switching fee to switch to another portfolio or investment option.

Advice fees

These are the fees paid to an adviser for personal advice. Advisers who sold a fund to an employer were often rewarded with an “advice fee” deducted every month from the members account whther or not they had received any advice. Most members had never seen the adeviser or even knew about the fee.

As part of FOFA (Future of Financial Advice) any ongoing advice fee with a retail client must be supported by a FDS (Fee Disclosure Statement).

Insurance premiums

Insurance premiums are also deducted to cover the cost of providing Death, Disability and Income Protection cover.

Most funds have a default level of cover that can be increased or decreased. This cover is usually cheaper than can be negotiated outside the fund and is alos usually provided without proof of health.

Establishment fee

Some funds may charge a fee to set up all the member records and deductions.

Withdrawal fee

Withdrawal fees can be charged every time a member makes a withdrawal from their superannuation. This is ostensibly to cover the cost of processing the withdrawal.

Exit fee

Exit fees may be imposed on a fund or member who exits in order to move to a new fund with a new provider. This may be seen as a punishment or disincentive to exit but may be warranted if the fund has been paying bonuses that are as yet unearned.

What types of superannuation benefits are there?

There are two types of structures, defined benefit and defined contribution.

Defined benefit

A defined benefit fund defines the benefit at retirement by a formula. For example, the fund will give the retiree (say) 2% of final salary for each year as a member of the fund. So, if they were a member for 50 years, the would enjoy 100% (2% x 50) of final salary. The crucial benefit of these funds is there is no “performance” risk to the retiree. They get the benefit regardless of underlying fund performance. For this reason they are “dying out”. They carry far too much risk for the fund.

Defined contribution

A defined contribution fund defines the contribution to the fund. These contributions accumulate within the fund and the final benefit depends entirely on how well the fund has performed. The retiree carries all the risk (and reward). These are by far the most popular funds in Australia.

What categories of super funds are there?

Key statistics for the superannuation industry as at 30 September 2022: 

 September 2021September 2022Change
Total superannuation assets$3,433.5 billion$3,322.3 billion-3.2%
Total APRA-regulated assets$2,324.1 billion$2,252.5 billion-3.1%
Of which: total assets in MySuper products$922.8 billion$887.4 billion-3.8%
Total self-managed super fund assets$890.3 billion$865.2 billion-2.8%
Exempt public sector superannuation schemes assets$164.1 billion$153.2 billion-6.6%
Balance of life office statutory fund assets$55.0 billion$51.3 billion-6.7%

1. Small funds

(a) Self Managed Superannuation Funds (SMSFs)

An SMSF must have between 1 and 4 members.

An SMSF is predominately for people who want to control their own superannuation. The trustees, who are also members, choose their investments, investment strategy and specialist advisers. They also take on the responsibility of the fund’s administration such as maintaining records, financial statements, tax returns and audit.

The sole purpose of an SMSF is to provide retirement benefits for its members. This sounds simple enough but many trustees have floundered on this principle by using their fund as their personal bank account or ignoring their own investment strategy.

Unless members have the expertise to set an investment strategy, choose the investments and do all the administration they will have to buy that expertise or put their retirement funds at risk. Specialists cost money and it is generally accepted that unless an SMSF has at least $250,000 it would not be a cost-effective option.

SMSFs have been an extraordinary success story. In 2004 there were 271,515 SMSFs and as at June 2015 there were 556,998 with over a million members, 70% comprised of just two members. Performance has also been impressive. According to the ATO (Australian Tax Office) their average return over 8 years to June 2014 was higher than large super funds. They are also have the largest share of superannuation fund assets. Distribution of funds as at August 2020 is as follows;

(b) Small APRA funds

A small APRA fund (SAF) is much like an SMSF but the compliance obligations are passed onto an approved trustee company.

They can be useful for:

  • Anyone who wants greater control of their super investments but without the trustee responsibility.
  • Families who provide for a relative with an intellectual disability.
  • Those moving or living overseas who can no longer be a member of an SMSF.

2. Retail funds

Retail funds are offered by the big institutions like the banks and AMP. They usually offer;

  • Investment options. Most offer a wide range of investment options.
  • Insurance. Most offer insurance benefits like TPD, Term life and salary continuance.
  • Ancillary benefits. Many have ancillary benefits like cheaper home loans, online access etc.
  • Financial advisers. Most are recommended by financial advisers who charge for their advice.
  • Accumulation funds. They are all accumulation funds. Your contributions accumulate with interest.
  • Fees. Retail funds used to be associated with higher fees but this has changed. Some have low cost offerings like MySuper.
  • Profit. They are all companies with shareholders and a profit motive that drives their decisions.

3. Industry funds

Industry funds were initially for employees of a certain industry. Today the larger industry funds are open to everyone. They usually offer much the same benefits as retail funds;

  • Investment options. Most offer a wide range of investment options.
  • Insurance. Most offer insurance benefits like TPD, Term life and salary continuance.
  • Accumulation funds. They are all accumulation funds. Your contributions accumulate with interest.
  • Fees. Industry funds are associated with lower fees because they don’t carry the cost of a financial adviser. They also don’t have shareholders and can concentrate on benefits to members.

4. Corporate funds

A corporate fund is a super fund open only to employees of the employer sponsoring the fund. The fund may be controlled by a board of trustees comprising the employer and employees or it could appoint an independent trustee.

Typical features are;

  • All profits are given to members. There are no shareholders sharing them.
  • A large range of investment options.
  • Most are accumulation funds but some may still offer a defined benefit. A defined benefit is usually ‘defined’ as a percentage of final income (often around 2%) multiplied by years service. So 50 years service means the member will retire on 100% of his or her final salary. This type of fund used to be common but has become a rarity as employers divested themselves of the risk of having to pay these pensions in an aging population.

5. Other funds

5a. MySuper

MySuper is the new default account for employees who don’t choose a superannuation fund. This will become their default choice. MySuper is characterised by;

  • Lower fees.
  • Fewer options.
  • Investment options related to ‘stage of life’. Usually this means the investment option becomes less risky as the member approaches retirement.
  • The ability to opt out of insurance.

5b. Eligible rollover funds

These funds are a holding account for lost or inactive members who have relatively low balances. There is a disparity of costs and returns and so members with low balances could find them decimated by fees and poor returns.

Will my super survive a market crash?

A market correction can have a devastating effect on your retirement plans. If you have enough to survive there is every chance your balance will recover and even increase. The crucial factors will be;

  • How much super you have.
  • How severe the turn-down.
  • How long it lasts.
  • How much you draw down.
  • How robust the recovery.

When returns can’t cover draw downs

The larger your balance the more likely you will survive the crash. Assuming you had a balance of $1,000,000 in a fund earning a net 5% pa from which you drew down $50,000 pa. This will leave the balance almost static – you withdraw as much as is earned.

During a market crash your balance is eroded by negative performance as well as the $50,000 pa you need. When the market bottoms out you will need much better performance than 5% to cover your $50,000 withdrawal and the likelihood is you will need to draw down capital.

As you draw down capital the depleted balance reduces further and the situation deteriorates. Only stellar returns will restore the situation to where it was before the crash.

The 1987 crash was followed by stellar returns and 10 years after the crash the retiree in the example above would be almost back to the original balance of $1,000,000 having withdrawn $50,000 pa throughout. After 8 years the balance would have been $671,192. The GFC saw a less “robust” recovery and 8 years after the crash (May 2016) the balance would only be around $622,697, close to the 1987 balance.

Will my account-based pension impact my age pension?

Firstly you must be of pension age to get the age pension.

Qualification age

Date of birthQualification age
1 July 1952 to 31 December 195365 ½ years
1 January 1954 to 30 June 195566 years
1 July 1955 to 31 December 195666 ½ years
1 January 1957 and later67 years

Under age pension age

If you are under age pension age and not drawing on your super then your super assets are not assessed by Centrelink.

If you are under age pension age and receiving payments from your super fund then your super assets are assessed by Centrelink. The super assets are taken into account for the assets test and may be also deemed to earn an assessable income for the income test.

Pension phase

New rules for account based pensions

New deeming rules came into effect on the 1 January 2015 that apply to all new pensions commenced after this date. The result is your super will be tested twice before you get the age pension. Firstly your super balance is assessed under the asset test and secondly income will be “deemed” to have been earned on the super balance and assessed under the income test. Retirees who do not draw down any income will be deemed to have done so.

The current deeming rate for singles is 0.25% on financial assets (which could include your super balance) up to $60,400 and 2.25% on the balance. For couples it is 0.25% on the first $93,600 of combined income and 2.25% on the balance. For example, a super balance of $300,000 will be deemed to earn (0.25% * 60,400) + (2.25% *balance) = $5,542 pa or $213 per fortnight Fortnightly income above $204 reduces the pension by 50 cents for every dollar over the limit. This would reduce a fortnightly pension of $1,096.70 (for a single person, non-homeowner) by around $5.28.

Old rules

All pensions held before 1 January 2015 will be assessed under the old rules until they choose to change the product and so any changes should be made with caution and appropriate advice.

Under the old rules there is no deeming on a super balance although it is assessed under the assets test. The pension will be assessable under the income test (less a deductible amount representing a return of capital). This deduction prevents the super from being assessed twice which the new rules introduce.

If the pensioner withdraws a lump sum and spends it immediately on food or the mortgage then it is not assessable. If the lump sum is deposited into a bank account then it becomes a financial asset and assessable.

Asset test – March 2024

Single homeowners will have an asset limit of $301,750 . Single non-homeowners will have a limit of $543,750. Couple homeowners will have an asset limit of $451,500. Couple non-homeowners will have a limit of $693,500. Every $1,000 over the limit reduces the pension by $3.

Income test – March 2024

Your fortnightly income must be below $204 to get the full pension and $360 for a couple. The pension is reduced by 50 cents for every dollar over the limit..

Age pension rates – March 2024

The maximum pension rate for a single is $1116.30 and $1682.80 for a couple

SAPTO (Seniors and pensioners tax offset)

To be eligible for the seniors and pensioners tax offset (SAPTO) you must:

  • be eligible for an Australian Government pension or allowance
  • meet income limits for you and your spouse. These are,
    • You didn’t have a spouse and your rebate income was less than $50,119.
    • You had a spouse and the combined rebate income for you and your spouse was less than $83,580 ($95,198 if separated by illness).
Rates and rebate income thresholds for SAPTO
StatusMaximum tax offset amountShading-out thresholdCut-out threshold
Each partner of a couple$1,602$28,974$41,790
Each partner of an illness separated couple$2,040$31,279$47,599

Withdrawals from super

Conditions for withdrawal

1. Aged 65 or older

If you’re aged 65 or over you can withdraw a lump sum even if you are still working.

2. Reach preservation age and retire (or start a transition pension)

Preservation age
Date of birthPreservation age
Before 1 July 196055
1 July 1960 – 30 June 196156
1 July 1961 – 30 June 196257
1 July 1962 – 30 June 196358
1 July 1963 – 30 June 196459
From 1 July 196460

Retirement means you have ceased gainful employment either:

  • when you were 60 years old or over
  • before you turned 60 years old and have reached your preservation age. Your fund trustee must be satisfied you have no intention of becoming employed ever again.

3. Satisfy an early access requirement.

  • Compassionate grounds
  • Terminal illness
  • Severe financial hardship
  • Incapacity
  • First Home Super Saver scheme
  • Temporary resident leaving Australia

Tax on withdrawals

The amount of tax you pay depends on the following factors;

  • What proportion of your funds are taxable and tax-free
  • Your preservation age and your age when you make the withdrawal
  • Whether you are making the withdrawal as a lump sum or pension
  • Whether it is a death benefit income stream
  • Whether you exceeded;
    • Defined benefit income cap (rare)
    • Low rate cap (currently $235,000)
    • Untaxed plan cap (currently $1,705,000)

For example;

  1. If you’re under age 60 and withdraw a lump sum (from a taxed super fund):
    • You don’t pay tax if you withdraw up to the ‘low rate cap’, currently $235,000.
    • If you withdraw an amount above the low rate cap, you pay 17% tax (including the Medicare levy) or your marginal tax rate, whichever is lower. If you are under your preservation age you pay 22% tax (including the Medicare levy) or your marginal tax rate, whichever is lower.

2. If you’re aged 60 or over and withdraw a lump sum from a taxed super fund (and most are) it is received tax-free.

For most people it is fairly straight forward but your situation may be more complex, so see an expert before making a decision.