Making sense of allocated pensions

Approaching retirement? Let our simple guide remove some of the guesswork.

If retirement is on the horizon, you’ve probably heard about an allocated pension (also known as an account-based pension and retirement account) as one of the income stream options available.

We’ve answered some of the commonly asked questions about allocated pensions to help you navigate your way.

What is an allocated pension?

An allocated pension is a regular income stream drawn from your superannuation savings. Typically you can access your super once you’ve reached preservation age.

Your preservation age will be between 55 and 60 depending on when you were born. You can find out your preservation age here.

It’s also worth noting that as allocated pensions are based on the amount you have saved in your super they do not guarantee an income for life. If you want to ensure you don’t outlast your money, our super simulator and retirement simulator can help.

Are there limitations to how much money I can withdraw?

Typically, there is no limit to how much you can withdraw from an allocated pension. So, in addition to receiving periodic income stream payments, you can choose to withdraw some or all of your money as a lump sum.

Each year however you’ll need to withdraw a minimum amount. This figure is calculated based on your age and will be a percentage of your account balance. The table below shows you just how much.

Age Yearly minimum withdrawal
55-64 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95+ 14%

How does a transition to retirement pension differ?

With a transition to retirement pension you can usually only withdraw periodic payments from your super savings. However, you can do so while working full time, part time or casually once you’ve reached your preservation age.

If you are reducing your work hours this can make up for a reduction in wages.

If you’re still working full time however, there could be a range of tax advantages worth exploring with an adviser.

Unlike an allocated pension you don’t usually have the option to withdraw your super as a lump sum. And while there’s still a 4 per cent minimum you must withdraw each year, with a transition to retirement pension the maximum you can draw is 10 per cent each year.

What taxes will I pay on an allocated pension?

  • You will not be taxed on investment earnings within your fund
  • From the age of 60 you will not pay tax on pension payments you receive
  • If you’re between age 55 and 60, the taxable portion of your allocated pension will be taxed at your marginal tax rate less a 15 per cent tax offset.

Whether an allocated pension is tax effective will depend on your individual circumstances.

Tax implications need consideration and to seek advice from an expert, AMP can help you find an adviser.

Can I also receive the government’s Age Pension?

It is possible to have an allocated pension and receive the government’s Age Pension. The value of various assets you have can determine whether you’re eligible for the Age Pension. And your income can then affect the amount you receive in Age Pension payments, if you are eligible.

Allocated pensions are generally subject to the deeming rules for income test purposes, which means they are assessed the same way as financial assets (like cash, shares and managed funds). Under these rules all financial investments are assumed to earn a certain rate of income regardless of how much income is actually generated.

The benefit of this is that when Centrelink assesses eligibility for Age Pension payments and other government benefits for those with an allocated pension, the level of income payments received from the allocated pension may be higher than the amount that is classified assessable income under the income test. 

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