In this article we are going to discuss the value of drawing an account based pension, formally known as an allocated pension, from superannuation and also how this strategy can be utilised whilst you are still working, a transition to retirement strategy.

An account based pension is an income stream drawn from your superannuation fund to fund your retirement living needs. You are able to begin drawing a pension from super upon reaching preservation age, which if you were born prior to 1 July 1960 is 55 years of age.

A transition to retirement strategy allows you to contribute greater amounts to super pre tax via salary sacrifice whilst drawing an account based pension at the same time. The strategy ensures that contributions made to super are taxed at 15% as opposed to your marginal tax rate which could be as high 46.5%

There are significant benefits to drawing an account based pension from super:

� When the decision is made to withdraw a pension, your super fund ceases to pay tax on its earnings
� It also ceases to pay capital gains tax on realised gains in your super fund.
• Between ages 55-60, pension income is still taxed by you personally, but you receive a 15% tax rebate on the pension income.
• From 60 years of age all pension income drawn from super becomes non-taxable Points to consider
• Whilst conducting a transition to retirement strategy, you are unable
to draw more than 10% of your super balance per annum until you fully retire. You must also draw a minimum pension from your super balance annually.

The amount depends on your age, beginning at 2% if you are between
55 - 64 years of age.

• Once retired and a account based pension only is drawn, the 10% maximum no longer applies.
• $50,000 is the maximum contribution to super allowable including employer contributions, for a person 50 years of age and over.

The benefits of a transition to retirement strategy are illustrated below -
Fred - 60 years of age

Income - $120,000 per annum
Super balance - $500,000
Salary sacrifice - $50,000 per annum
Account Based Pension withdrawal to top up income needs
Total tax saving - $11,050 per annum}

If you would like further information regarding this strategy please feel free to email me at andrew@hewison.com.au

Andrew Hewison is Director and a Certified Financial Planner with Hewison & Associates Wealth Management:
Level 4, 102 Albert Road,
South Melbourne
Ph: 9682 1900 Web:
www.hewison.com.au