What is Superannuation Pension Phase?

The superannuation self managed fund is by far the biggest fund in Australia which people use to generate funds to provide themselves with income when they reach their retirement phase. The fund is highly suggested by the government and it’s supported with tax benefits. The government has set out some minimum standards for contributions for employees in order to manage the superannuation fund. Besides self funding, employers also need to contribute towards the fund on top of the salaries and wages of the employees.

Moving the accumulated superannuation funds to pension phase is how you’ll provide yourself with retirement income. If you already have an established superannuation fund, you need to know a few things when starting your superannuation pension phase. The account based pension is a personal retirement income account that operates in the SMSF. You will receive regular income payment as well as earn investment income. Any income earned in this phase is tax free. However, in order to “trigger” the pension phase and start getting the SMSF benefits, you need to meet one of the following conditions of release:

  • Reach age 65
  • Permanent incapacity
  • Reach preservation age
  • Permanently retire after reaching preservation age

Before you reach the superannuation pension phase you should check your trust deed, completely review it and update it appropriately. Most of the times, this will require a legal professional. The investment strategies that you picked during the accumulation phase might not be appropriate in your pension phase. Studies have shown that changes in the investment strategies are important when you enter the pension phase because in it, you will do a lot of withdrawing, unlike during the accumulation phase where you keep investing, so it’s really important that you have an adviser to assist you.

One of the key requirements is that you draw the minimum payment amount each year so that you retain your tax-free status of your fund’s earnings. This amount is based on your age, and the older you get, the greater the payment factor percentage. As a trustee, you are required to keep records of transactions by law. These records must be kept for at least 5 years, while some must be kept for 10. The rules also may obligate you to nominate one dependent to receive pension after your death. It’s important to take all of this into consideration and it might be appropriate to review your estate planning arrangements at this point. Again, seek advice from a professional in this field to make everything clear so you can plan accordingly.

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