An account-based pension is a popular way for Australians to manage their retirement savings.
Investing your super in a pension rather than taking it as a lump sum can make your retirement savings go further.
A pension is a special investment ‘structure’ with tax advantages created by the government to help people manage their super savings in retirement. By investing your super and any other retirement savings in a pension, you can access your money as a regular income in a tax-effective environment.
You can invest in the same assets, such as cash, shares or property, inside or outside a pension. The difference is that the government provides tax savings on investments inside a pension as an incentive to convert your super into a regular income stream to support you in retirement, rather than take it as a lump sum.
The lower tax rates mean the same investment in a pension will go further than if invested outside a pension.
Tax savings on investments inside a pension
All investment earnings in a pension are tax-free
This means you could be better off than:
Tax free income and withdrawals if you’re over age 60
Assumptions: Investor is age 60 and invests $450,000 for retirement, drawing an income of $40,000 in the first year that increases by 3% pa. Retirement funds earn 8% pa in both the pension and outside of the pension.
Unlike super, where you must keep your money invested until you retire, when you invest in a pension you get the tax benefits and you’re free to withdraw at least $2,000 whenever you want, including cashing in your entire pension at any time.
Despite our increased reliance on super to fund our retirement, many Australian retirees continue to supplement their retirement income with at least a part government age pension.
Even if you only qualify for a part pension, this can make a difference to your retirement lifestyle, as you’ll automatically qualify for a pension concession card and associated discounts.
A couple that owns their own home can save nearly $380,500* in super and receive the full age pension or up to $830,000 and still qualify for a part pension, provided they don’t have any other assets and pass the income test.
See our Super Savings and the Government Age Pension fact sheet