Advice Centre
Frequently Asked Questions
Financial Advice | Superannuation | Retirement | Investing | Insurance
Planning for Retirement
How much income will I need in retirement?
There are many opinions about what is a reasonable and achievable level of retirement income. Essentially, this is an area where individual circumstances and expectations play a big part.
One guide that provides a useful reference is the Westpac/Australian Superannuation Funds Association (ASFA) Retirement Living Standard. This standard sets out weekly budgets for ‘modest’ and ‘comfortable’ standards of living for singles and couples in retirement.
ASFA estimates that, as at the September quarter 2011, a retired couple who own their home and are relatively healthy would currently need $55,316 per year in retirement to be comfortable, while a couple living a more modest lifestyle would require $31,767. A single comfortable retirement comes in at $40,412 a year, while a modest lifestyle for a single person is budgeted at $21,957.
Read more about the ASFA standard or use our Calculator to see if you will have enough super for your retirement.
How many years of retirement can I expect?
Actuaries (financial specialists who calculate statistical probabilities based on facts and trends), have noted that growth in life expectancy in Australia has been increasing steadily for some time:
- Men who are currently 55 years of age are expected to live until they are 82 - another 27 years.
- Women who are now 55 years of age are likely to live until they are 86 - almost another 31 years.
When can I access my super (Preservation Age)?
If you have reached Preservation Age and continue to work and do not establish a non-commutable income stream, you can only access your superannuation when you:
- Retire permanently from the workforce; or
- Reach 60 years of age and cease employment with one employer (you do not have to retire permanently); or
- Reach 65 years of age, regardless of your employment status.
Preservation Age is related to your date of birth, read more.
Transition to Retirement
What is Transition to Retirement (TTR)?
If you have reached the Preservation Age (see section above) you have the opportunity to continue participating in the work force and adding to your super, you may draw some of it as a non-commutable super income stream.
Non-commutable means you cannot take a lump sum payment from your income stream while you continue to work and you are limited to drawing down annual income payments not exceeding 10% of your account balance. You can, however, withdraw a lump sum when you retire. Read more
Is there a maximum annual income limit for a TTR?
Yes, a maximum annual income limit does apply to super income stream accounts operating under TTR provisions. The maximum is 10% of your annual account balance, until you reach age 65.
What are the tax benefits of TTR?
A TTR strategy can provide the following tax benefits:
- Investment earnings on super income streams are not taxed at all.
- People who have reached 60 years of age or over do not pay any tax on super income streams or lump sum benefits they draw down (unless they include a post June 1983 untaxed component).
- Concessional tax treatment, including a 15% offset applies to the taxable component of a superannuation income stream drawn down by someone under 60 years of age.
- Members can salary sacrifice additional funds into superannuation (subject to contribution caps) and pay tax of 15% on those funds, as opposed to taking the funds as salary and paying tax at their marginal tax rate which is most likely higher.
- Members can accumulate large superannuation balances in a tax concessional environment.
- Lump sum death benefits paid to a member’s dependant(s) are not taxed. The tax levied on non-dependants can be up to 15% (plus Medicare).
Retirement Income
What pensions are available to me?
There are two main types of income streams (pension) you can choose from:
- Account based (e.g. super income streams/allocated pensions)
- Annuities
Both types of pensions are fully assessable under the Governments assets test provisions for the Age Pension, although both are concessionally treated under the income test. Annuities established pre 20/09/2004 are exempt from the asset test provisions, while those established between 20/09/2004 and 20/09/2007 are 50% exempt.
Account based pensions (super income streams/allocated pensions)
This is an individual account where you must take out a set minimum amount at least annually. You can take out as much as you wish above the minimum, including cashing out the whole amount. (The only exemption are pensions commenced under a ‘Transition to Retirement’ provision).
The minimum amount is calculated on your age and account balance. If you are over 60 the income you drawdown is tax-free, as are the investment earnings in the pension itself. The pension can be transferred only on death.
The account balance will rise and fall subject to market conditions and investment choices.
Annuities
An annuity is simply an investment that gives you a regular ‘agreed’ payment over a specified term. The annuity term can be for your lifetime, or for a specified number of years.
If, when you die, the amount paid to you as income from an annuity is less than the amount you invested, generally the balance of your investment subject to an adjustment for interest and fees can be paid to your estate.
An annuity is not subject to rises and falls in the market and may therefore provide more certainty than an account based pension. However, they are less flexible in that they do not allow lump sum withdrawals. Early redemption (closure) of an annuity can result in significant penalties.
What is a super income stream?
Super income stream funds, which are also commonly known as Allocated Pensions or Account Based Pensions, allocate members’ money into their own investment account within the fund. Read more
What is the minimum income I must draw from my super income stream?
The minimum level of income that you can draw from a retirement income stream is dependent upon your age, and whether any additional initiatives such as the temporary drawdown relief provisions apply. These limits are illustrated in the table below.
|
Age of beneficiary |
Minimum percentage (normal conditions) |
Minimum percentage (temporary drawdown) 2011/12 and 2012/13 |
|
Under 65 |
4% |
3% |
|
65-74 |
5% |
3.75% |
|
75-79 |
6% |
4.50% |
|
80-84 |
7% |
5.25% |
|
85-89 |
9% |
6.75% |
|
90-94 |
11% |
8.25% |
|
95 or over |
14% |
10.50% |
The payment rules specify minimum payments only. No maximum will apply, except pensions that are commenced under the Transition to Retirement (TTR) condition of release. TTR pensions have a maximum annual payment limit of 10% of the account balance at the start of each year.
What is a deductible amount?
A deductible amount is a term used in relation to retirement income streams to reflect what is considered to be the return of your capital over time. This is particularly relevant for Centrelink purposes, as the gross income that you receive from a retirement income stream is reduced by the deductible amount to provide the level of income assessed under the Centrelink income test.
What is annuity?
An annuity is simply an investment that gives you a regular payment over a specified term. The annuity term can be for your lifetime, or for a specified number of years. If, when you die, the amount paid to you as income from an annuity is less than the amount you invested, generally the balance of your investment subject to an interest adjustment and fees, can be paid to your estate. An annuity can provide more certainty whilst a super income stream offers more flexibility.
I have just turned 55. Can I claim my super as a lump sum?
The provisions that apply to accessing superannuation as a lump sum payment vary, depending on your age. Since you have reached Preservation Age but have not yet reached 60 years of age, you can only claim a lump sum if you retire permanently from the workforce.
Do I choose a lump sum or a pension, and what about taxes?
Choosing a lump sum or pension is very much an individual choice. Many people will withdraw some money as a lump sum from super to repay debt or undertake capital expenditure (often home renovations, new car, overseas holiday). The balance may be best left invested in super or converted to an income stream.
Access to lump sums from super generally depends on having reached Preservation Age, being retired, or ceasing work after you’ve turned 60. Tax on lump sums received depends on a number of factors, including if you have reached preservation age, whether you have reached 60, and how much the lump sum is. The main thing to remember is that if you are 60, any lump sum benefit taken (assuming the benefit is accessible and there are no ‘untaxed’ amounts) will be entirely tax-free.
If you are between 55 and 59 inclusive, the benefit is broken into two components:
- The tax-free component.
- The taxable component has a lifetime (after age 55) Low Rate Cap (LRC) amount of $165,000 (for 2011–12), which is also tax-free. However, while tax-free the taxable component may nevertheless impact adversely on certain government benefits (e.g. the superannuation co-contribution scheme), and on certain tax offsets. Amounts received above the LRC are taxed at 15 per cent plus the Medicare levy.
The tax-free component (if any) and taxable component of any lump sums withdrawn, must be taken in the proportions reflecting the proportion each component makes up of the total value of the super account at the time just before the lump sum is taken.
Your superannuation fund can provide you with a break-up of your tax-free and taxable components.
Can I turn my pension into a lump sum?
For most account-based pensions the answer is yes. You may decide you no longer want to wait to access your super through regular payments over a period of years and would rather do other things with it or invest it yourself now.
See your super fund for details or speak to a Financial Adviser.
How are super pensions taxed?
Anyone who has reached 60 and retired will pay no tax on income streams. The only exceptions are some retired public servants who receive benefits from untaxed funds.
Pensions paid from taxed funds to those aged over 60 will also not be counted as part of a pensioner’s taxable income. This means they won’t attract the Medicare levy or affect tax offsets. However, if you are under 60 the tax situation is quite different. So, if you are nearing 60 and can wait to drawdown your super until then, you may save yourself tax.
The 'taxable' portion of pensions paid from taxed funds to those between 55 and 59 will be taxed at personal tax rates. There is a 15% tax offset on the remaining assessable income. The 'tax-free' portion of the pension is not assessable at all.
No tax will be payable on investment earnings.
If you are a public servant who receives a pension from an untaxed fund, you will pay tax on your pension but receive a 10% tax offset against your tax bill or payments received from when you turn 60.
Who will receive my pension account balance in the event of my death?
The amount of money remaining in your account, less any outstanding fees and taxes, can be paid to your dependant(s) or legal personal representative (i.e. the Executor or Administrator of your estate) in the event of your death. The balance can be paid out as a lump sum or continue as an income stream for your beneficiary (if permitted by your fund).
It is recommended that you nominate one or more beneficiaries, as this can help guide the trustees of the fund as to who to pay the proceeds to. Please contact your super income stream provider to find out how.
We also recommend you speak to a Financial Adviser prior to making a decision regarding your beneficiaries as there may be Estate Planning and tax implications.
Who is a dependant?
Your dependants may include:
- your spouse (including a de facto spouse, former spouse or same sex partner)
- your children (including adopted, step or ex-nuptial)
- a person with whom you have an ‘interdependency’ relationship. Two people may have a relationship of ‘interdependency’ if:
- they have a close personal relationship
- they live together
- one or each of them provides the other with financial support, or
- one or each of them provides the other with domestic support and personal care.
- a person who is wholly or partially financially dependent on you at the date of your death
Note: This section refers to the definitions of dependants under superannuation legislation. These definitions are different from those of dependants for taxation purposes.
What assets should I invest in, and how much risk is involved?
A risk profile, also known as an investor profile, categorises investors based on their willingness to take risks in order to achieve higher returns. This information is then used to select the appropriate investments to match their risk profile.
By not investing all your funds into the one investment, or even the one asset class, you can significantly reduce the level of fluctuations in your investment value. This type of investment approach is known as diversification. Diversification is about selecting investments that complement each other and perform well at different times of the economic cycle.
Read more under Investing FAQ or try our Risk Profile Calculator to help you determine your risk profile.
Age Pension
At what age can I qualify for the age pension?
Currently men need to be age 65 before they qualify for the age pension, whilst the earliest that women can qualify is age 64. The qualification criteria for women born between 1 January 1946 and 1 July 1952 are outlined below, as are the criteria for both men and women born on or after 1 July 1952.
|
Women born between |
Eligible for age pension at age |
|
1 January 1946 and 30 June 1947 |
64 |
|
1 July 1947 and 31 December 1948 |
64 ½ |
|
1 January 1949 and 30 June 1952 |
65 |
|
Men and women born between< |
Eligible for age pension at age |
|
1 July 1952 and 31 December 1953 |
65 ½ |
|
1 January 1954 and 30 June 1955 |
66 |
|
1 July 1955 and 31 December 1956 |
66 ½ |
|
1 January 1957 and later |
67 |
See full table on Centrelink's website
How much Age Pension can I get?
As at 20 September 2011 the full age pension was $689.00 a fortnight for singles and $519.40 each for couples (pensioners may also receive a supplement in addition to these amounts).
Both an income and asset test is used by Centrelink to determine your level of age pension entitlements. The test that gives you the lower entitlement is the one that will be applied.
Asset test
- The most important feature of this test is that the family home is excluded from the definition of asset, regardless of how much it is worth.
- Assets included in the test are shares, investment property, cash and fixed-interest securities.
- Lump sum super amounts are also included.
- If you own valuable art, vintage cars or antiques these too are included in the asset test.
Income test
An income test also applies. However, income from any superannuation income stream is treated concessionally.
More information about the tests are available on Centrelink's website.
How much can I own in assets and earn in income and still get the pension?
Both an income and asset test is used by Centrelink to determine your level of age pension entitlements, the test that gives you the lower entitlement is the one that will be applied.
Thresholds as at 20/09/2011:
Asset Test
|
Homeowner |
Full Pension (up to) |
Part Pension (less than) |
|
Single |
$ 186,750 |
$ 686,000 |
|
Couple or one partner eligible |
$ 265,000 |
$ 1,018,000 |
|
Non-Homeowner |
Full Pension (up to) |
Part Pension (less than) |
|
Single |
$ 321,750 |
$ 821,000 |
|
Couple or one partner eligible |
$ 400,000 |
$ 1,153,000 |
Income Test
| |
Full Pension* (up to) |
Part Pension* (less than) |
|
Single |
$ 150.00 |
$ 1,647.60** |
|
Couple |
$ 264.00 |
$ 2,522.00** |
Source: Centrelink
*Based on fortnightly income.
**Existing transitional pensioners may have a higher limit.
What is assessable under the assets test?
- Cash, investments such as shares, unit trusts (investment/managed funds), insurance and friendly society bonds (less any debts against these assets, e.g. a loan you arranged to purchase some shares, but not if the loan is secured against your home)
- Investment property (less any debt against the property, but not if the loan is secured against your home)
- The value of your furniture and personal assets (only declare a ‘fire sale’ value – not the insured value)
- The value of your car, caravan, boat or trailer
- Superannuation is only assessed if you are over age pension age
What is gifting?
Gifting is the process of disposing or transferring your assets without receiving a fair price for those assets.
Centrelink has strict rules on the level of funds that you are able to gift, and allow singles or couples to gift $10,000 in each financial year or $30,000 over a five year period. Any assets gifted above these levels will be considered deprived assets (counted as if you still own them) and be subject to normal deeming provisions for a period of five years from the date of the gift.
You must notify Centrelink within 14 days of making any gifts.
What is deeming?
Deeming is a set of rules used by Centrelink to assess income from financial assets. Under these rules they assume that financial investments are earning a certain amount of income, regardless of the income they actually earn.
Deeming is used to calculate income for pension, benefit and allowance payments. For the latest deeming rates and rules visit the Centrelink website.
If I have super will I also get the Age Pension?
You may still receive a part Age Pension depending on the outcome of the income and asset test used by Centrelink to determine your level of entitlements. See questions above for more details.
Can I spend my entire super and then get the pension?
If you are over 60 and have permanently retired from the workforce, you will be able to withdraw 100% of your super, spend it, and then apply for the age pension if you have reached the qualifying age.
You do not need to spend all your money to receive the pension and in many cases you may be better off maximising the income from your super/investments than solely relying on the age pension.
If you intend to give funds away please note Centrelink has gifting limits (see above).
Am I able to claim for the Age Pension even though I am still working and I am over the Age Pension age?
Yes. The Age Pension is both income tested and asset tested. If both your income and assets fall below the respective limits then you may be able to also receive the Age Pension.
If I am working while receiving the Age Pension, am I eligible for the Pensioner Bonus Scheme?
The Pensioner Bonus Scheme is now closed to new applicants, however those who were pension age prior to 20 September 2009 and who met all other eligibility conditions (eg. residency etc) may still be able to apply.
The Pensioner Work Bonus scheme commenced 20 September 2009. If you are working whilst in receipt of the Age Pension, the first $250 per fortnight of salary and wages is not assessed for the purposes of the income test. You may find it beneficial to now claim the Pensioner Bonus Scheme and then immediately seek the benefits from the Work Bonus Scheme. We suggest speaking with a Financial Adviser for more information.
What is the Work Bonus Scheme?
The Work Bonus Scheme is designed as an incentive for pensioners to participate in the workforce.
Under the Work Bonus Scheme, the first $250 of fortnightly employment income will be disregarded from the income test for pensioners over age pension age. This is in addition to the standard income free rates.
Pensioners will also be able to build up any unused amount of their $250 fortnightly bonus in an 'income bank' (to a maximum of $6,500). The income bank can be used to exempt future earnings from the pension test, so that a pensioner could earn up to $6,500 a year extra without it affecting their pension. This could be from regular work each fortnight or, for example, over a six week period before Christmas.
What are pensioner concession cards?
There are a number of concession cards that are available to senior Australians.
Most people approaching pension age are keen to qualify for the Pensioner Concession Card, which provides discounts to a number of services as well as access to the Pharmaceutical Benefits Scheme. In order to qualify for the Pensioner Concession Card you must however be able to receive at least part payment of the age pension.
For some people with excessive assessable assets, qualifying for the Pensioner Concession Card is sometimes difficult, if not impossible.
However, in most cases where people are precluded from being able to access the Pensioner Concession Card they may be able to access the Commonwealth Seniors Health Card*, which when held in conjunction with a state-based concession card, provides similar concessions to the Pensioner Concession Card.
*Commonwealth Seniors Health Card
This card is provided to those who are old enough to receive the age pension, but do not receive one. It is subject to certain residency requirements and an income limit of $80,000 a year for a couple (not separated by illness, and without dependent children), or $50,000 a year (single person, without dependent children). The income limit is based on an Adjusted Taxable Income (ATI) test for the financial year prior to applying for or renewing the card.
| Type of benefit |
Eligible card type |
|
Prescription and other medicines listed on the |
Pensioner and Commonwealth Seniors Health Card |
|
Bulk-billed GP appointments, at the discretion of the doctor |
Pensioner and Commonwealth Seniors Health Card |
|
A reduction in the cost of out-of-hospital medical expenses |
Pensioner and Commonwealth Seniors Health Card |
|
Assistance with certain hearing services such as hearing |
Pensioner Concession Card |
|
Discounted rail travel on Great Southern Rail services. |
Pensioner and Commonwealth Seniors Health Car |
Last updated on 10th April 2012
