Retirement

Taxation and social security issues

The amount of tax you pay on your super benefit depends on your age and how you access your benefit. The tax rules can be complex, so it may be worthwhile speaking to a professional tax or financial adviser.

Here is a brief overview of how retirement income options are taxed.

Income payments and investment earnings

Keeping your benefit within the super environment once you retire has its benefits. If you roll your benefit into a superannuation income stream (MH suggested pension) product, you pay no tax on investment earnings (which includes any realised capital gains). You will also pay no tax on your income payments if you're over 60 or have satisfied a condition of release.

If you have reached your preservation age and are under 60, the income from your pension may be taxed at your marginal tax rate. A 15 per cent tax rebate may apply.

Transition to retirement income streams

If you have reached your preservation age you may be able to benefit from the transition to retirement rules and rollover your benefit into a non-commutable income stream while continuing to work.

If you're over 60 your income payments will be completely tax-free. If you're under 60 your income payments may contain a tax-free component. The taxable component is taxed at your marginal tax rate and a 15 per cent rebate may apply.

Lump sum payments

You can take your super as a lump sum at 60 tax-free (if you have satisfied a condition of release). If you decide to invest your benefit outside super, any investment income you earn will be taxed at your marginal tax rate.

Leaving your benefit in your super fund

You can now leave your benefit in your super fund indefinitely. You can drawdown your super once you reach 60 or have satisfied a condition of release. You will pay tax on your investment earnings to a maximum of 15 per cent and may also pay capital gains tax - although there is no income tax on withdrawals.

Contributions

You can continue contributing to super while you are working up to the age of 75 providing you meet certain work test conditions. This means you must be gainfully employed for at least 40 hours over a 30 consecutive day period during the financial year in which you made the contribution.

Contributions made from your before-tax salary (salary sacrifice) will be taxed at 15 per cent. Any contributions you make from your after-tax salary are not taxed. Your investment earnings will continue to be taxed up to 15 per cent.

Social security issues

Retirement income streams are subject to means testing for social security purposes.

As your retirement income payments include some of your capital, special rules apply to income testing. Generally, only the income component of your payment is counted towards the income test.

All income streams, except defined benefit types, are counted towards the assets test. Non-commutable income streams (ie those you cannot convert into a lump sum) receive a part exemption from the assets test.

Social security rules can be complex so it may be worthwhile seeking advice from a professional tax or financial adviser. The Department of Families, Community Services and Indigenous Affairs publishes a brochure on retirement income streams. You can access this at the FaHCSIA website.