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Commencing a pension
Once you reach your preservation age, at your option, you may commence a transition to retirement income stream. You can commence a transition to retirement income stream whilst still employed.
When you retire, you can commence a pension.
The main difference is that the transition to retirement income stream pays benefits before retirement whilst a pension pays benefits after retirement.
Self managed superfund can pay to a member the types of benefits described.
Transition to retirement pension (pre-retirement)
A transition to retirement pension allows you to receive your superannuation benefits as an income stream even whilst you are still working if you have reached your preservation age.
The pension account is converted from the monies accumulated in the superannuation fund. Investment earnings are added to the account and pension payments are deducted from the account until the account balance is fully paid out or commuted.
Account based pension (post-retirement)
An account based pension is a way of receiving your superannuation benefits as an income stream, instead of a lump sum, after you have reached your preservation age and permanently retired or have satisfy another condition of release.
The pension account is converted from the monies accumulated in the superannuation fund. Investment earnings are added to the account and pension payments are deducted from the account until the account balance is fully paid out.
Taxation of benefits
When you convert your superannuation to a pension, there is no tax payable.
Over the age of 60
Your pension payments and any lump sum withdrawal are tax-free. The trustee is not required to report the pension payment to the Australian Taxation Office (you are not required to include these payments in your income tax return).
Under the age of 60
Part of your pension payment may be tax free, and the balance will be taxable. The taxable component of your pension payments are tax at your marginal rate plus Medicare levy. The taxation of your pension payments may be reduced if you are eligible for a tax-free component.
What do I need to do to commence either a transition to retirement pension or an account based pension?
You should ensure that the conversion from accumulation to pension is effective and appropriately documented. To have Superannuation Accounting Services prepare a pension commencement pack (all necessary minutes, forms and pension payment agreement) for you, download the Commencing a Pension form here, complete it and return to us.