Super withdrawal options
You can receive your super as a:
Check with your super provider to find out what options are available to you.
The super withdrawal option you choose may affect the amount of tax you pay and the amount of money you have for your retirement. Withdrawing money from super as a lump sum can also affect your transfer balance account.
Super income stream
You receive a super income stream as a series of regular payments from your super provider (paid at least annually). The payments must be made over an identifiable period of time and meet the minimum annual payments for super income streams. To find out what will happen if the income stream doesn't meet the minimum annual payment, see Minimum annual payment not made.
The payments don't need to be at the same interval, and the amount paid may also vary. However, a single payment does not qualify as a super income stream. For example, your super payment will not qualify as an income stream if you received a single payment in 2013 and no payments in 2012 and 2014.
Super income streams are a popular investment choice for retirees because they help you manage your income and spending. Super income streams are sometimes called pensions or annuities.
Your super income stream may be either:
- an account-based super income stream
- capped defined benefit income streams that are
- lifetime pensions, regardless of when they started
- lifetime annuities, life expectancy pensions and annuities, and market-linked pensions and annuities, that existed prior to 1 July 2017.
To find out how your super income stream will be taxed, see How tax applies to your super.
Once you start your income stream you are unable to add more money to it. Make sure you have made all contributions (including rollover amounts) to your super provider before your income stream starts. Any contributions made after your income stream starts will be put into a new super account with your provider.
You are only able to put more personal contributions into super if you're:
- under 67 years old (or under 65 years old for 2019–20 and earlier)
- between 67 and 75 years old and gainfully employed on at least a part-time basis or meet the work test exemption.
If you want to include additional contributions to your income stream account, you need to stop your income stream and start a new one.
If your provider's rules allow it, you can stop your income stream or change the amount of your regular payments. However, there may be income tax implications if you stop your income stream part way through the year.
Find out about:
Account-based income stream
An account-based income stream is an account made up of money you've accumulated in super, which allows you to draw a regular income once you retire. An account-based income stream includes market-linked pensions that started on or after 1 July 2017.
Your provider normally continues to invest the money in your super account and adds returns from investments to your account. Your account balance fluctuates with market performance.
Each year you can withdraw as much as you like through your account-based super income stream (unless you're receiving a transition to retirement income stream).
You must withdraw a minimum amount each year – based on your age and account balance. There may be income tax implications if your provider does not pay you the minimum amount each year.
You can continue to receive your super income stream until there is no money in your account. How long your super income stream lasts depends on how much you take out each year and what investment returns you receive. There is a limit on the amount you can transfer into retirement phase, this is known as the transfer balance cap.
If there is money left in your super account when you die, it may go to a dependant beneficiary you nominated with your provider or it may become part of your estate.
Example: account-based income stream
Danny turns 56 years old during 2016–17 and retires on 8 October 2016. He immediately starts an account-based income stream that he receives in monthly payments. He decides to take a partial commutation from his income stream in 2016–17.
Before he receives the partial commutation payment, Danny elects to treat his income stream benefit as a super lump sum for tax purposes. He has previously used $25,000 of his low rate cap in 2015–16; therefore $170,000 of this cap is still unused.
On 29 August 2016, he receives the partial commutation of $28,000 from his self-managed super fund (SMSF). The lump sum has only a taxable component that was taxed in the fund. The fund does not withhold any tax from the payment.
Danny includes the $28,000 as assessable income in his 2016–17 tax return. He receives a super lump sum tax offset – which means that the rate of income tax on the lump sum is nil because the taxable component ($28,000) does not exceed his unused low rate cap.
Danny continues his income stream in 2017–18 and again decides to take a partial commutation payment. The partial commutation now meets the definition of a super lump sum and no election is required. He has previously used $53,000 of his low rate cap; therefore, $147,000 of the cap remains.
On 20 December 2017, he receives the lump sum payment of $25,000 from his SMSF. The lump sum has only a taxable component that was taxed in the fund. The fund does not withhold tax from the payment.
Danny includes the $25,000 as assessable income in his 2017-18 tax return. He receives a super lump sum tax offset – which means that the rate of income tax on the lump sum is nil because the taxable component ($25,000) does not exceed his unused low rate cap.
Danny’s commuted amount in 2017–18 does not count towards the minimum annual pension payment requirement for super income streams. To meet this requirement, Danny would also need to make sure he receives at least the minimum pension payments during the financial year.
End of example
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Legacy or market-linked pension
If you had a market-linked pension before 1 July 2017 and the term has ended, you can rollover from the commutation of an existing complying pension to a new account-based income stream. If the market-linked pension is being paid to a reversionary beneficiary, then it retains its original status.
If you fully or partially voluntarily commuted a legacy or market-linked pension before 1 July 2017 to purchase a new market-linked or life expectancy pension, then you may be able to commute an excess transfer balance amount after your super fund receives a Commissioner’s commutation authority.
To assist your fund in reporting commutations from market linked pensions, we issued updated guidance on market linked pensions. Also see administrative requirements for TBAR due to law change.
Transition to retirement income stream
Once you reach your preservation age you may be able to receive regular payments (an income stream) from your super provider while you continue working. You can do this by choosing to start a transition to retirement income stream (TRIS). This will allow you to either:
- reduce your working hours without reducing your income
- continue working and salary sacrifice to boost your super.
There are restrictions on the amount you can withdraw each financial year. For example, if you are under 65 years old, you can access between 4–10% of the balance of money in your super account each financial year.
Once you have met a condition of release with a nil cashing restriction, you can access your super benefits in other ways and don't need a TRIS. In these cases, your provider will start paying you a normal account-based pension or you can take your benefit as a lump sum.
You can seek independent financial adviceExternal Link to help you decide if a transition to retirement income stream is right for you.
A transition to retirement income stream must be an account-based income stream that can't be converted into a lump sum until the member meets a condition of release with nil cashing restrictions. This is called a non-commutable super income stream.
Once you meet a condition of release with nil cashing restrictions you can stop the TRIS and access your super through a different income stream or a lump sum.
You don't have to advise your employer you're receiving a TRIS or advise your super provider you're receiving employment income.
You will need to decide from which payer to claim the tax-free threshold (on your Tax file number declaration NAT 3092). If you claim the tax-free threshold with both payers, you may end up with a tax liability at the end of the income year.
A TRIS is only eligible for exempt current pension income and counts towards your transfer balance account when it is in the retirement phase. A TRIS will move into the retirement phase when the member meets one of the following conditions of release:
- 65 years old
- permanent incapacity
- terminal medical condition.
Satisfying a condition of release with a nil cashing restriction means that the pension is no longer subject to the restrictions that are generally characteristic of a TRIS.
A TRIS will move automatically to the retirement phase as soon as the member reaches 65 years old. For the other conditions of release listed above, the member needs to notify their super provider for the TRIS to move to the retirement phase.
Example: transition to retirement income stream
Jodi is 57 years old in 2016–17. In addition to her income from employment ($40,000 per year), she commences a TRIS from her self-managed super fund (SMSF) part-way through the financial year. Jodi receives three payments of $12,000. She has received no previous super lump sums and the full $195,000 low rate cap is available to her.
Jodi receives benefits totalling $36,000 in 2016–17, with tax-free components of $3,600, and taxable components (taxed in the fund) of $32,400.
Before she receives each payment, Jodi elects to treat her TRIS benefits as super lump sums for tax purposes.
In her 2016–17 tax return, Jodi:
- does not include the tax-free component of $3,600, as it is non-assessable non-exempt income
- includes the taxable component of $32,400 as assessable income
- receives a super lump sum tax offset – which means that the rate of income tax on the lump sums is nil because the taxable component ($32,400) does not exceed her unused low rate cap.
Jodi continues to receive quarterly TRIS benefits in 2017–18, totalling $48,000. She is no longer able to make the elections to treat the TRIS benefits as super lump sums.
In her 2017–18 tax return, Jodi:
- does not include the tax-free component of $4,800, as it is non-assessable non-exempt income
- includes the taxable component of $43,200 as assessable income
- is taxed at her marginal tax rate
- receives a tax offset of 15%.
As Jodi has not met a nil cashing release her SMSF would not be eligible for exempt current pension income on the TRIS.
End of example
Capped defined benefit income stream
A defined benefit interest is generally an interest for which the benefits payable from the interest are defined by reference to a specified amount or matter. This is commonly the member's salary at a particular time or an average salary for a particular period. These are generally fixed term and lifetime pensions and annuities. Rather than drawing payments out of your super account, you have an agreement with your super provider that they will pay you a regular income, usually guaranteed for life or for a fixed term.
This type of income stream is generally paid from a government super scheme or life insurance company. It offers certainty by providing a fixed income over a set period of time.
If you are receiving a super income stream from a defined benefit interest, you should check with your super provider to determine if it is a capped defined benefit income stream.
If you have a capped defined benefit income stream your provider will calculate the 'special value' of your income stream and this value will count towards your transfer balance cap.
Capped defined benefit income streams include:
- lifetime pensions, regardless of when they commenced
- lifetime annuities that existed prior to 1 July 2017
- life expectancy pensions and annuities that existed prior to 1 July 2017
- market-linked pensions and annuities that existed prior to 1 July 2017.
Innovative retirement income stream products
The term innovative retirement income stream covers a range of lifetime products that did not meet the annuity and pension standards prior to 1 July 2017.
There are several key elements that must be met for a retirement product to be considered an innovative income stream. These are:
- similar to an ordinary account-based income stream, the provider is not able to start paying benefits until you have met a nil cashing restriction condition of release. However, the difference with these products is that the start date for benefit payments often is deferred until a later event, usually age-related. This is agreed upon when you sign up for the product
- once benefit payments start, they must be made at least annually and be payable for your remaining lifetime (and any primary or reversionary beneficiaries). There can be no unreasonable deferral of payments from the income stream
- there are restrictions on the amount that you can commute and take as a lump sum payment or rollover within the super system. These restrictions apply after the income stream enters the retirement phase and are based on a declining capital access schedule.
Taxation impacts for a member who holds an innovative retirement income stream product
Similar to other super income streams, a payment made to you from an innovative income stream is a super benefit. Tax on your super benefits is generally taxed at your marginal tax rate. However, this varies depending on several factors, including:
- your preservation age and the age you will be when you get the payment
- whether the money in your super account is taxable or tax-free.
Difference between an innovative income stream and an account-based income stream
There are several differences between an account-based income stream and an innovative income stream. For innovative income streams:
- you still need to have either retired, turned 65 years old, have a permanent incapacity or have a terminal medical condition before benefits will be paid to you. The start date of your benefits may be deferred until a later date. This date will be agreed upon when you sign up for the product
- you will continue to receive benefits even if the original capital you invested is exhausted
- the amount you receive as a benefit payment is determined by the product and your contract with the provider, you are not able to vary the amount
- the amount you are able to rollover or take as a lump sum is determined by a capital access schedule.
Innovative income streams and the transfer balance cap
Innovative income streams count towards your transfer balance cap when they become a retirement phase income stream. This happens when you retire, turn 65 have a permanent incapacity or a terminal medical condition, even if you have not yet started to receive benefits.
Any extra capital you add to your innovative income stream after it becomes a retirement phase income stream also count towards your transfer balance cap.
When a super income stream stops
Generally, your super income stream stops when there is:
- no money left in your super account
- no longer a member or dependant beneficiary who is automatically entitled to receive the income stream.
Other reasons your super income stream may stop will be set out in the governing rules of your super provider. Common reasons include:
- minimum annual payment not made
- death of the member.
Minimum annual payment not made
Your super income stream stops for income tax purposes if your provider does not make the minimum annual payment.
If your provider makes the minimum annual payment the following financial year, a new income stream is taken to have started on 1 July of that year for income tax purposes.
What this means for you
If your provider does not make the minimum annual payment, your income stream is taken to have stopped at the start of that financial year.
All payments you have received during the financial year will be treated as super lump sum payments for income tax purposes. You may have to pay additional tax.
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Commutation is the process of converting a super income stream into a super lump sum.
If the rules of your provider allow, you can fully or partially commute your income stream to:
- stop or change the amount of your income stream
- purchase another income stream
- take a lump sum benefit in cash
- rollover the amount back into the super system.
Your super income stream stops when you request to fully commute your income stream payments to a lump sum payment.
The minimum annual payments still apply (on a pro-rata basis) to the income stream payments you receive before a full commutation. This amount is based on the number of days in the income stream payment period:
Minimum annual amount × (days in payment period ÷ days in financial year)
New regulations ensure that partial commutations of an account-based pension do not count towards the minimum pension payment. This reflects changes to treat these payments as a lump sum for tax purposes from 1 July 2017.
After your death
Your super income stream stops when you die unless you have a dependant beneficiary and they are automatically entitled to receive the income stream.
Whether your income stream automatically transfers to your dependant depends on the governing rules of your super provider. The rules must specify who is entitled to receive the benefits and whether they will be paid as an income stream or lump sum.
The rules of your super provider may give the trustee discretion to pay either a lump sum or income stream to a dependant beneficiary. If your provider has this discretion, your income stream does not automatically transfer and stops when you die. If your provider ultimately decides to pay the relevant dependant beneficiary a super income stream, a new super income stream commences at that time.
What this means for you
You should contact your super provider to check what the rules are when you die and if your dependant is automatically entitled to receive a super income stream.
Super lump sum
If your super provider allows it, you may be able to withdraw some or all of your super in a single payment. This payment is called a lump sum.
You may be able to withdraw your super in several lump sums. However, if you ask your provider to make regular payments from your super it may be an income stream.
Once you take a lump sum out of your super, it is no longer considered to be super. If you invest the money, earnings on those investments are not taxed as super and may need to be declared in your tax return.
Super lump sum election
From 1 July 2017, you can no longer elect to treat pension payments as lump sums for tax purposes. Instead, they will be taxed as income stream benefits. Under the pay as you go (PAYG) withholding rules, your super provider may need to withhold more tax from your payments.
Before 1 July 2017, regulation 995-1.03(b) of the Income Tax Regulations 1997 allowed you to elect to treat one or more payments from a super income stream as a super lump sum for tax purposes.
Generally, this option was used to take advantage of tax concessions available between your preservation age and 60 years old. If you had made this election it changed the tax treatment of the payments because you were able to access the low rate cap tax concessions.