What are income streams
Your super fund can pay benefits to a member as a super income stream if the member has met one of the conditions of release. A super income stream (also known as a super pension or annuity) is a series of periodic payments to a member.
An income stream is either:
- account-based – the income stream is paid from a super account held in the member’s name
- non-account-based – the income stream doesn't have an identifiable account balance in the member’s name. The member will receive regular income, usually guaranteed for life or for a fixed term.
For more information, see Conditions of release.
Standards for income streams
The following standards apply to both account-based and non-account-based income streams:
- a minimum amount is paid each year and payments occur at least annually
- there's no maximum annual payment amount except for transition to retirement income streams
- an income stream can be commuted to a lump sum only in certain circumstances
- the capital supporting the income stream can't be added to by way of contribution or rollover once the income stream has started
- an account-based income stream can’t have a residual capital value on termination, but a non-account-based income stream may have a residual capital value
- an income stream can’t be paid to a non-dependent beneficiary after the death of a member.
If these standards are not met in an income year, the super income stream ceases for income tax purposes and we consider the fund has not paid an income stream at any time during the year.
Income streams that started before 1 July 2007, and complied with the rules applicable at the time, are deemed to satisfy the new requirements and may continue to be paid under the former rules.
For more information, see Income streams started before July 2007.
Minimum payments
A minimum annual payment amount must be paid each year. It's calculated using a percentage factor based on the member’s age.
For account-based income streams, work out the minimum annual payment amount by multiplying the account balance of the income stream by the percentage factor:
- In the first year of the income stream you work out the account balance and take the member's age on the commencement day of the income stream.
- In all following years you take the account balance and the member's age from 1 July of the relevant year.
- Transition to retirement income streams need to meet the same standards as ordinary account-based income streams. Additionally, there is a maximum annual payment limit of 10% of the account balance.
For non-account based income streams, work out the minimum annual payment amount by multiplying the purchase price of the income stream by the percentage factor.
- In the first year of the income stream you take the member’s age at the start of the income stream.
- In all following years you take the member’s age on each anniversary of the start day.
Before you can commute an income stream (for example, into a lump sum), you must ensure the required minimum amount has been paid.
The minimum payment amount will be a proportion of the annual amount if the income stream starts, is commuted or rolled over part way through the year.
Note: From 1 July 2017 partial commutation payments won't count towards minimum annual pension payments.
Breach of the minimum payment standards
Once an account-based income stream starts, there is an ongoing requirement to meet the minimum payment standards in the SIS Regulations.
The Australian Prudential Regulation Authority (APRA) is responsible for the general administration of pension and annuity standards in the Superannuation Industry (Supervision) Regulations 1994. If you breach the minimum payment standards you should contact APRA for guidance and information on next steps.
Ending an income stream
The most common circumstances for an income stream ceasing are:
- the pension capital is exhausted
- failure to meet the super standards
- the income stream is fully commuted to a lump sum
- the member dies (but the income stream may continue if a dependent beneficiary is automatically entitled to a reversionary income stream).
For more information, see Taxation Ruling TR 2013/5 Income tax: when a superannuation income stream commences and ceases, APRA funds – starting and stopping a super income stream (pension) and Transfer balance cap reporting.