Super Allocated Pension Guide
When we talk about Superannuation, the next aspect of it is allocated pension because a very common question with regards to superannuation is how to turn your Super money into an income stream when you retire.
Some people are a bit concerned about what an allocated pension is. The first part that we need to make clear is that an allocated pension is different from super in that it pays no tax.
Let's explore what an allocated pension is in more detail...
When you retire, you will find your super money sitting in your Super Fund. You may choose to leave it there, or you may sum all of that to start an income stream so that Super money will be coming in while you are retired.
So what happens is when you retire, your money is moved from your Super Fund into your pension. Once your pension is full, you can tap into that pension money to start paying for your income stream. This is what's called an allocated pension.
An allocated pension is an income stream or pension that is tax effective and payable to a retiree from a group of assets deposited for this purpose. An individual account under your name credits your rollover money.
Under present legislation, every investment earning is tax-exempt and is included in the account. Charges and pension payments are deducted from the account.
Allocated pensions permit you to nominate the income you want to get, instead of having an indexed or a set of the amount for the entirety of the pension. Government-imposed minimum amounts bind this. The payments are made until the account balance runs out.
It is also crucial to know that there's no certainty that your pension payments will keep providing for you for any particular period. Pension payments will stop as soon as your pension account is exhausted.
The period over which payments continue varies according to three main factors:
- the pension payment amount you receive annually
- the investment earnings (after fees) amount earned by your account annually
- any lump sum withdrawals
Am I qualified to start an Allocated Pension?
To be qualified to utilize the Allocated Pension Facility, you should have left employment with Alcoa of Australia. Also, none of your benefits are subject to preservation.
This will mean that you:
- have permanently retired from work and are over the preservation age;
- are between 60 and 65 and have changed jobs;
- have reached age 65 years old (even though you're still working); or
- have become permanently and disabled at any age.
- be a New Zealand or Australian citizen or a permanent resident
What is my preservation age?
Your preservation age is as follows:
- Before 1 July 1960 - 55
- 1 July 1960 to 30 June 1961 - 56
- 1 July 1961 to 30 June 1962 - 57
- 1 July 1962 to 30 June 1963 - 58
- 1 July 1963 to 30 June 1964 - 59
- After 30 June 1964 - 60
How do I commence an Allocated Pension in the Plan?
You can start an Allocated Pension by rolling your super money into the Allocated Pension Facility.
How do I decide my pension's payment amount?
You can decide your pension payment amount, subject to the minimum requirements below.
Minimum pension amount
The minimum yearly pension payment you could receive should at least be equivalent to the percentage of the balance of your Pension Account as stated in the pension factor table:
Age^ Percentage of Pension Account Balance*
- Under 65 - 4%
- 65 to 74 - 5%
- 75 to 79 - 6%
- 80 to 84 - 7%
- 85 to 89 - 9%
- 90 to 94 - 11%
- 95 up - 14%
^Age is your age at the beginning of the financial year, or in the case of the initial year when you commence a pension.
In the year wherein your pension starts, the minimum payment is based according to the number of days that remains in the financial year (for instance, the amount is pro-rated). A minimum payment is not required if the pension starts after May 31.
There's no maximum yearly payment limit for Allocated Pensions.
What charges will I pay?
For information on the current fees, refer to the Pension's Product Disclosure Statement.
How regularly are pension payments made?
In general, pensions are paid monthly via direct credit to the bank, credit union account, or building society. You will have to present all the necessary documents at least ten business days before the initial payment to permit your Pension Account to be set up.
What if I wish to alter the amount of the pension payment?
You can alter the amount of the pension payments anytime you want, given the amount you state is at least the same amount as the minimum required by legislation.
Can I rollover further super money into my Account?
If you have super in funds aside from the Alcoa of Australia Retirement Plan -- you want to move these accounts to the Pension facility, then perhaps, it will be in your interest to consolidate them first in your super membership in the Plan (before entering the Allocated Pension section). The reason for this is that under the present rules, once you establish the Pension Account, any money moved to the Allocated Pension will give rise to a new Pension Account established under your name, thus resulting in a new and distinct pension.
Can I decide how I invest my Pension Account?
Certainly, you can choose from the same available investment options in the Plan's Accumulation section – Growth, Equity, Enhanced Cash, or Capital Stable. You could invest your Pension Account in any of such options.
Your Pension Account is credited directly with the investment returns (negative or positive) of your preferred options, and all fees and payments are taken from your super account.
The Trustee strongly suggests that you seek financial help from an expert financial adviser if you're unsure as to the most excellent investment strategy for you.
What tax will I pay on my pension payments?
If you are over 60 years old, then tax is not payable on your pension payments. And if you are 55 to 59 years old, then tax will be taken from the pension payments – and the amount of which will depend on every person according to their case.
Regardless of your age, there are more tax implications if you're also getting income from other sources, like investment shares or properties. The Trustee suggests you seek assistance on your situation from a certified adviser, before starting an Allocated Pension.
Can I withdraw a lump sum?
You can certainly commute (withdraw) all or a portion of your Pension Account as a lump sum payment, or move it to another super fund at any moment, subject to the conditions below:
- Before the partial or full commutation of the Allocated Pension, a payment of a pro-rata portion of the minimum yearly payment should be made*. This should occur in the financial year wherein the commutation is to take place.
- Withdrawal requests should be directed to the Pension Plan and in writing. As identity proof, your member number should be quoted when applying for a commutation.
Commutations can be made payable to the fund members only.
"Commutation" or to "commute" is a super term for converting your pension benefits to a lump sum. Note that taking a lump sum payment could have tax implications and may have social security payment implications as well. The Trustee suggests that you talk to a licensed or a certified financial adviser to learn how this choice might affect on you.
This requirement doesn't apply to a commutation due to the death of the reversionary pensioner or product holder. It also does not apply to commutation for paying a super contributions surcharge debt, which is a payment split under the Family Law provisions or an extra contributions tax assessment.
Can I stop my pension payment and withdraw all of my account balance?
You can certainly close your Pension account and take the balance whenever you like.
What happens if I pass away?
There's no available insurance cover in the Allocated Pension Facility. Thus, in case you die, the benefit payable will be your Pension's total amount.
An account at the time of death benefit payment
You have the following options for deciding to whom, and however, your death benefit is to be paid:
- reversionary pension option – nominate your spouse in advance, to whom your payments will revert.
- lump sum option – your dependants or your legal personal representative receive the death benefit.
The Key Point of Superannuation
The key point here is you can make those ad hoc withdrawals, but you're not compelled to take an ounce of money from super. It's just there if you need it. Everything will continue as normal, and you will have the same business options, structure, payment and disability insurance, and those will continue until you reach the age of 70.
Your income potential will continue as you choose to continue work. You can continue to drop down to a part-time basis as well until you reach the age of 65.
If you are ready to start withdrawing funds regularly from your super, then an allocated pension might be a better option for you. It's really important to consider a pension because sometimes if your vision of important involves withdrawing a lot of funding and setting off into the sunset, then you might want to consider that.
As you retire, your money needs to work over the next 25-30 years. In fact, research shows that return-generation on your super after you retire will, at least, double that generation life. Now that is simply amazing and staggering. An allocated pension can be a good option for you.
When You Draw Down on Pension
When we draw down on a pension, it's still super money, but you're allowing it to be withdrawn from your bank account. You have to option to get it paid either monthly, or course, bi-annually, or even annually. You need to get a minimum amount out; that is certainly going to be one of the requirements. You can also calculate the balance of your percentage so you can monitor how your funding is doing.
One of the major benefits of an allocated pension is that the earnings are tax-free. If you are under age 60, any income that you take out of your pension will be accessible. In any sense, it's just like another employer is paying you.
So you will need to declare on your tax return, but it won't all be accessible at your normal marginal range. There will be a 15% tax offset.
FAQs on Superannuation Allocated Pension
Q: Can I withdraw money?
In general, you are allowed to withdraw any amount of cash from account-based pensions. This means, aside from regular payments, you can have access to numerous funds whenever you need them.
Note that you are obliged to take out a minimum amount annually from your superannuation, based on your account balance and your age.
Q: How are allocated pensions different to TTR pensions?
Transition-to-retirement pensions allow you to withdraw payments from your superannuation balance regularly when you reach your preservation age. This can be done while you’re still working, thus making this an excellent choice for those who seek to cut their working hours.
For individuals who maintain full-time hours until they retire, they can explore tax advantages.
When deciding on an income stream, you are most suitable, note that with a TTR pension, you don’t have the choice of withdrawing superannuation as a lump sum payment.
For these two pensions, the minimum 4% that ought to be withdrawn annually is the same, but the maximum annual withdrawable amount with a TTR pension is 10%.
Q: What taxes should I pay?
You won’t need to pay tax on your investment earnings with an account-based pension. After reaching 60 years old, your pension payments won’t be taxed.
If you’re between age 55 and age 60, you’ll pay the marginal rate of tax, minus an offset of 15% on the taxable component of the account-based pension.
Establishing whether or not this is a tax-effective choice varies according to your personal circumstances and condition.
Q: Will I still be qualified for the Age Pension?
Fortunately, it is possible to hold an account-based income stream and get the Age Pension.
Your assets’ value determines the Age Pension’s eligibility, and your income stream can impact the amount you get. Account-based pensions are bound by the same rules as financial assets like shares, cash, and managed funds.
This indicates that payments from account-based pensions may be greater than assessable income, thus making you qualified for full or partial pension payments.
When you reach the age of 65, you can start looking into an allocated pension. Again, with the allocated pension, you don't pay any tax. So it becomes a tax-free investment. This is one of the aspects of Superannuation transitioning into a pension that is so important.
An allocated pension allows you to get a tax-free income in retirement. The government does mandate that you need to take a certain minimum allocated pension payment each year. Other than that you have full access to capital when you retire and you have an income stream that is tax-free.
Account Based Pensions are very flexible as they allow the member to choose how much income is received each year and you also have the flexibility to withdraw lump sum amounts in addition to the pension amount.
While you may not see the benefit of an allocated pension while you're still in your 20s, the benefit of an allocated pension when you're 65 is enormous. So just remember – transitioning between super and pension is all about saving tax and giving you the retirement that you need.
Need further advice?
If you'd like further info regarding Allocated Pension, you can do the following:
- read more about it on our resources page at Australian Super Finder Helpful Resources; or
- contact Helpline at 1300 252 167.
If you'd like advice that considers your specific objectives, needs, and financial situation, you should call an organization or person licensed to provide advice.
Disclaimer: All information on this website is of a general nature only. We have not taken into account your financial situation, needs or objectives. You need to make up your own mind and ascertain yourself if it is right for you. We recommend you read the product disclosure statement(s) and the financial services guide before making any financial decision.