Account based pensions

Описание: What is an Account Based Pension?
If you have superannuation savings and you reach your preservation age, you can change you superannuation from the accumulation phase to a pension phase and start receiving a regular income from your superannuation pension account.
Account based pension provides regular payments that are flexible and tax-effective during your retirement. Allocated pension do not have a maximum income payments, this is your choice, and you can draw as much as the full balance of your pension. But please don’t do that, unless there is an urgent and very important reason, or part of well-designed retirement plan.

How does Allocated Pension work?
You commence your account-based pension by rolling over the specific amount from your existing superannuation account to a pension account. Allocated pension does not accept private money, only superannuation money. Once commenced, you cannot add any additional money. This minimum payment is counted on 1st of July each financial year as a percentage of your balance on that day. That percentage is based on your age, so refer to the table I've just explained.

How is Account Based Pension invested?
Investing in an account based pension is a positive and a negative at the same time. The positive is that your money is invested in a chosen by you portfolio, therefore invested in the market. The negative is that your money is invested in the market. Picking a portfolio out of a hat, just because this is what is advertised by the super fund on TV is not a very smart strategy. Your investment portfolio needs to match your risk profile, otherwise you will be under a constant stress over underperformance, volatility and investment risk.

How long will my Account Based Pension last?
This is exactly where your account-based pension falls short. There is no guarantee how long your income will last.
What's worse the outcome is not only dependent on the level of income you draw year after year, but on the level of returns of your pension fund - and you really have no control over this part of your pension behaviour. What's worse, it very much depends on the order of such returns, and that is known as a sequencing risk.

What are benefits of account based pension?
1. Investment earnings are tax -free, that does not apply to the Transition to Retirement pension though.
2. If you are over the age of 60, your pension payments are generally tax-free. For this reason I do not recommend starting the pension account before you reach age of 60.
3. Also, if you are over the age of 60, any lump sum withdrawals are generally also tax-free.
4. As listed above, you can vary your income payments and investment portfolio is subject to your choice and your decision

What are negatives of account based pension?
1. Lack of income certainly
2. Market volatility of investment returns
3. Returns and level of income are not guaranteed to last for as long as you might need to.

What happens to your account based pension after you die?
When setting up a super account or your pension account, it is a good practice and frankly should be one of your responsibilities to prepare the Superannuation Death Benefit Nomination. This is to ensure that your super or pension savings will be paid to the right beneficiary, the beneficiary chosen by you.

Videos mentioned today:
When can I access my super? -
Investment risk in super -
Who gets your super when you die? -
Super Death Benefit gone terribly wrong -

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