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Retirement means different things to different people, but we all have one thing in common: we need to think about securing an income. The Age Pension is a go-to option that’s available to some, but there’s another choice that works in a similar way: your super fund can provide a type of pension in the form of a retirement income stream, also known as an account-based pension. In this article, we explore how retirement income streams work and discuss what to look for when choosing a retirement income account.

How a retirement income stream works

You have the option to stay within super when you exit SASS by rolling over your money to another super fund. One of the products to consider is a retirement income account with another super fund. Here’s how it works:

  1. You transfer your super money to a retirement income account with a super fund
  2. That money is invested by the super fund on your behalf
  3. You choose how much regular income (subject to a minimum) you want to be paid you also have the choice of making lump sum payments over and above this.
  4. Your super money is progressively drawn down until it runs out

Benefits of a retirement income account

Converting your super into steady income when you retire is easy with an account-based pension and there are a number of benefits including:

  • Tax-free – You won’t pay tax on:
    • investment earnings,
    • income payments, or
    • any lump sum payments you decide to take.
  • Flexible – You choose when you want to receive your payments (fortnightly, monthly, quarterly, half-yearly or yearly). You also have the flexibility to change the amount of your income payments (subject to a minimum) and to take a cash lump sum if needed – say for a holiday or home renovation or one-off medical expenses.
  • Stay invested – you have the opportunity to keep growing your savings. You’ll get access to a range of investment options designed to suit your retirement needs and the level of risk that matches your life stage. You’ll have access to professional investment managers and diverse investment opportunities not typically accessible to DIY investors.

Things to know about retirement income accounts

You don’t have to formally retire to be eligible for a retirement income account.You can start a retirement income account, if you:

  • are 65 or over – even if you’re still working 
  • reach your preservation age (ie. 60 years old) and retire, or
  • are 60 or over and have changed employers or temporarily stopped working.

The Government sets an annual minimum income payment percentage of your account balance that you must withdraw each year.1 This minimum withdrawal amount is based on your age. Your income from your retirement income account is not guaranteed. How long your money lasts depends on how much you transfer into your account, how much you take in payments each year and the investment returns you receive.

Comparing your options

The table below compares some of the key features of keeping your money in the retirement phase of super versus taking your super as a lump sum.

Before you exit SASS, it's important to check if you have a defined benefit pension option as a feature of your account. If you have this feature of your SASS account, it’s worth considering this as an option first.

 

Scroll table horizontally on mobile

  If you set up a retirement income account If you take your SASS benefit as a lump sum If you leave your money deferred in SASS
Tax free income payments Yes No No
Tax free investment earnings Yes2     If you invest your lump sum outside super any investment income or capital gains may be subject to tax at your marginal tax rate Investment earnings taxed at 15%
Withdraw lump sum amounts Yes N/A - you will need to withdraw your total SASS benefit Yes (if you meet a condition of release). You will need to withdraw your total SASS benefit
Minimum withdrawal requirements Yes No No

 

What to look for when choosing a retirement income account

If you’re drawn to the idea of a regular income in retirement and want to explore your options, what features should you be looking for?
 

  • Ease of withdrawals – look for something that offers you the flexibility to withdraw your money as and when you need to.
  • Minimum investment amount – make sure to check the minimum investment required to set up the income stream. There’s usually a set minimum investment, but you get to decide what payments you receive, and when as long as it’s over the minimum payment.
  • Clear fee structure – look for fees that are clear and easy to understand. If it’s not clear how much you’ll be paying in fees, you could be paying more than you expect.
  • Product provider – There are a variety of providers including industry super funds (such as Aware Super) and retail super funds. Some of the features you may want to look at when considering a provider are whether they have a responsible approach to investing, track record on investment returns and fees.

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Next steps for SASS deferred members

If you’re a SASS deferred member, knowing your options can help you make sure you have the funds to suit your retirement lifestyle.

Disclaimer

Minimum annual payments for super income streams | Australian Taxation Office (ato.gov.au)

2 On transfers up to your personal transfer balance cap

General advice only. Consider if this is right for you having regard to your objectives, financial situation, or needs, which have not been accounted for in this information. Read the PDS and TMD before deciding to acquire, or continue to hold, any financial product. You should read the Financial Services Guide, before deciding about our financial planning services. Issued by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL 238430); wholly owned by Aware Super (ABN 53 226 460 365).