Leaving super in accumulation phase is an option if you are retired or nearing retirement.
There are a number of reasons why you may choose to leave funds in accumulation phase.
Once you retire, you are not obligated to withdraw your super or commence an income stream.
You can simply retain your super in an accumulation account.
However, there are often benefits of not leaving super in accumulation account which you should explore first.
Leaving Super in Accumulation Phase
If you leave your super in accumulation phase, you are not required to make any withdrawals from it, even if you are retired.
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Your accumulation balance will simply continue to be invested and (ideally) increase in value over time.
Keeping your super in accumulation phase does not prevent your from accessing it.
If you have met a full superannuation condition of release, your savings can remain in an accumulation account and you are eligible to make ad-hoc withdrawals when you please.
If you are over age 60, lump sum withdrawals will generally be received tax free.
Reasons for Leaving Super in Accumulation Phase
There are a number of reasons for leaving super in accumulation phase.
1. You don’t need income from super
You may have adequate assets and/or income from other sources to cover your living expenses, therefore, you don’t need to draw an income from your superannuation savings.
2. You have more than $1.6M in super
If your total super balance exceeds the Transfer Balance Cap (currently $1.6M), you are limited with how much of your accumulation account can be transferred into an income stream.
Therefore, you may choose to leave some of your super balance in an accumulation account.
3. You might be still working or planning on returning to work
If you are still working, even after your retirement age, you may want to leave some or all of your super in accumulation phase because you don’t need additional income and so that your account remains open to accept future super contributions.
Super contributions are unable to be made into pension accounts.
4. You have personal life insurances within super
If you hold life, TPD or income protection insurance within super, you may want to leave some or all of your super in accumulation phase.
By doing so, the insurance policies will remain in place and premiums can continue to be paid from your member balance.
Transferring all of your super accumulation savings to an income stream, or withdrawing the balance in full, risks your insurance policies lapsing.
How is Super Taxed in Accumulation Phase?
One of the advantages of superannuation is the tax concessions on investment earnings.
All earnings received from investments within accumulation phase are taxed at 15%.
Earnings include income, interest, dividends, rent or distributions from assets.
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Earnings also include realised capital gains when investments are sold.
In fact, when an asset is sold within accumulation phase that was owned for longer than 12 months, a 1/3rd CGT discount will apply.
This means CGT is effectively reduced to 10% for assets owned longer than 12 months.
All concessional contributions made to an accumulation account are taxed at 15%, which is deducted from the contribution amount.
There is an additional 15% tax for high-income earners and a low income super tax offset for low income earners.
Leaving Super in Accumulation Phase Disadvantages
The disadvantages of leaving super in accumulation phase include:
1. Investment earnings are not tax free
If you leave your super in accumulation phase, all earnings will be taxed at up to 15%; whereas converting your accumulation balance to an account based pension will reduce tax on earnings to 0%.
2. No regular income
Leaving your balance in accumulation phase will not provide you with a regular income like an income stream will.
However, you can still make lump sum withdrawals if you have met a condition of release.
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3. Potential death benefits tax
Any amount held within superannuation accumulation or pension phase may incur death benefits tax of 15% on the taxable component if paid to a non-tax dependent upon death.
No death benefits tax is paid on investments owned outside of super in your individual name.
Is Super in Accumulation Phase Deemed?
Super in accumulation phase is not deemed for Centrelink purposes while you are under Age Pension age.
Once you reach Age Pension age, your total superannuation accumulation account balance is deemed under the Centrelink Income Test in line with the deeming rates.
As well as being deemed, your accumulation account balance is also assessed against the Centrelink Assets Test.
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hi chris love your work. hope you can help me!..born 15 07 61, want to ” retire ” withdraw $100,000.. pay off my house. and after maybe 2+ months go back to work as fulltime casual. Is this all possible and legal…thankyou.
Hi Tony, thanks!
Your superannuation preservation age is 57, which you have met. This means that you could have unrestricted access to your super if you were to retire with no intention of returning to work. This could also be accessed tax free using the low rate cap amount. However, if you intend on returning to work, it is not possible to access your super in this way.
The other alternative may be to wait until age 60, which provides you with the ability to have full access to your super if you ‘cease an employment arrangement after turning age 60’ – regardless of whether you return to work or not.
Hope this helps,
Chris
Hi Chris I am age 66. I have very little super (about 50k) and my sole asset is my house, which includes an Airbnb flat. I have a mortgage owing of c80k. My Airbnb earnings can be quite comfortable, (60k in 2019 -apart from Covid). It is a redraw mortgage so I can redraw a further c$80k. I live on the edge of Hobart which is somewhat bushfire prone. This causes me a bit of anxiety because, although I have insurance, if my house burnt down I’d have no where to live, no income, and no funds to rebuild until an insurance claim was settled… then there is the time it takes to build. So I had a thought to redraw funds from my mortgage and put that into my super over summer. Then put it back after the bushfire season is over. Is that OK? I could just take $25k. Or I could take $80k. Then can I take the money out of Super and put it back into the mortgage account in the autumn? I believe this incurs no charges. Is there any danger of incurring tax?
Hi Danielle,
I think the strategy you propose might be adding more complexity than is necessary. If I were you I would consider asking your bank about how a similar outcome could be achieved using a mortgage offset account and see if that option might relieve some anxiety. Ask your lender about any fees and risks associated.
Regards,
Chris
Really good article. I’m in the process of converting from the accumulation to the pension phase. After reading your article I’m really concerned about risking my life insurance policy in the SMSF fund. You noted in your article,…’ you may want to leave some or all of your super in the accumulation phase.’, could you be more specific, how much is ‘some’? When I’m in the pension phase, I intend to withdraw the minimal amount from the SMSF, ie the earnings of the SMSF, and not touching the capital (commercial properties). Similarly, does it apply to the $25k concessional contribution? Thank you.
Hi John, losing insurance by switching from an accumulation account to a pension account does not apply to SMSFs, as you are not closing down an account, as such. When switching to pension phase within an SMSF, the insurance policy will usually continue to be owned by the SMSF and the premiums will continue to be paid from the SMSF bank account. However, you should consult the SMSF trust deed and discuss the implications of switching to pension phase with your accountant. Generally, ‘some’ refers to enough to continue to cover insurance premiums for, say, at least 2 years, with the intention of topping up the accumulation account regularly, so that premiums can continue to be funded – otherwise the policy risks lapsing. Again, this is more relevant to non-SMSFs.
Regards,
Chris
Hi Chris,Thanks for your great tips you give on your site.I was born in May 1960.In August 2020 stopped working and retired after working for a small business as part time(15-20 hours per week) for 3 years .In October 2020 changed most of my Super into a Based Account income stream,getting 4% income.My last employer recently contacted me and needs my assistance to help run the business.
Not sure if the rules allows me to go back,and work with the same last employer,as part time or even casual.
Thanks for your assistance
Harold
Hi Harold,
Thank you for your kind comments.
One definition of retirement for superannuation purposes is ceasing an employment arrangement after reaching age 60.
If you genuinely ceased an employment arrangement with your former employer in August 2020 with no arrangement to return, then it is likely you satisfied the condition of release. This means you should be free to return (casual/part-time/full-time), because your intentions to cease the arrangement back in August were genuine and followed the natural process of ending the relationship. Further, your existing account based pension can remain in place and does not need to be rolled back to accumulation phase.
This is general information only. If you would like to consider personal advice, feel free to arrange a complimentary 15-min appt with us here to see if personal advice would be beneficial to you and your situation https://calendly.com/torowealth/15mincall
Regards,
Chris
Hi Chris. Enjoyed reading your article – l am 68 retired 12 months – l left my money in the accumulation account and l am surprised how its value has increased.
Thanks
Phil.
Hi Phil,
Thank you for your comment. Glad you enjoyed it. Whether your super is in accumulation phase or pension phase it will still be invested. The main differences is that you are required to draw an income each year from a pension account, but not an accumulation account. Plus investment earnings within accumulation are taxed at up yo 15%, compared to 0% in pension.
Hi Chris. Thanks for great article. A 60+ retiree who transfers $1.7m balance cap to the tax-free pension stream, can leave any excess funds in the super accumulation account. But they will pay 15% tax on EVERY dollar that is earned. If they withdraw the excess funds and invest in ETFs under their own name, the first $18,200 income earned is tax free, possibly more if eligible for seniors tax offsets. And they can reduce taxable income with franking credits, foreign tax credits, accounting fees etc. Am I missing something? I guess one advantage of parking excess funds in the accumulation account, is that we can transfer money regularly to ‘top-up’ the tax-free pension account back to $1.7m as it is gradually drawn down, if this is allowed.
Hi Chris, Pretty much correct. However, keep in mind that capital gains within accumulation phase of super will also only be taxed at 15% (reducing to 10% if the investment sold was owned for longer than 12 months). In relation to transferring more into pension phase – this is incorrect. Once you have maximised the amount transferred (not the balance), no more can be transferred in. Also, keep in mind, the transfer balance cap is currently $1.6M – increasing to $1.7M on 1 July 2021.
Regards,
Chris
Hi Chris it’s such a relief to find your plain English explanations.. My situation is I drew my super at age 55 because of health and to live on pending workers compensation. I was granted Disability pension in 2015. After 8yrs through the courts I was awarded lump sum in arrears in compensation less pension recovered and taxed 47c to the $.
At age 62 can I start a new super fund with the lump sum (150k)
I am getting fortnightly workers compensation payments less penalty for accessing my super.
(After 8yrs I have repaid 75% of what I drew to live on – so unfair)
Currently not fit for work, however that may improve with time?
I’m getting minimal interest on lump sum in savings account.
Do I have any options to return to super? Thanks
Hi Jan,
Thank you for your kind comments. I’m happy to hear you found the articles easy to understand.
Yes, given your situation, I would suggest obtaining affordable personal financial advice. If you do not have a financial planner, feel free to arrange a complimentary appointment with us, Toro Wealth, by booking in a time for a 15-min chat to see if personal advice would benefit you. Click here to book.
Kind regards,
Chris
Hi Chris.
I just found your website! Thanks for the interesting articles.
I finished permanent part time work in March 2021 with the full intention of having a mandatory break and then returning back on a casual contract with the company, who I had worked with for the previous 12 years.
I turned 60 in early May 2021 and I have since decided I will not take up the planned casual work with them and will retire.
I also have ‘per diem’ work with a tribunal, which works out to about 15 hours per week and I will continue this work but I would like to access my super if possible through an allocated pension rather than a TTR.
Would I meet the requirements of finishing with my employer after the age of 60 , as that is when I made the decision not to go back as casual or will it be taken to be that I finished in March 2021, which was a few months short of 60?
Kind Regards
Allison
Hi Allison, interesting situation. My initial thoughts would be that the employment arrangement ended when you initially finished, unless you had returned, in which case it might not have ended at all. The specifics of your situation would determine the outcome. I can’t tell you for sure which date you would use. You might consider seeking personal advice, or discussing your situation with the technical department of your superannuation provider.
I’d be interested in hearing the outcome.
Regards,
Chris
Hi Chris we have a SMSF and and are in accumulation phase. I’m 70 not working at present and wife 67 still working part time. We are thinking of setting up pension phase soon. The question is do l need open seperate bank and share accounts from the one l have in accumulation as l wish to keep accumulation open if l can. In other words how do you distinguish between accumulation and pension accounts???
Hi Alan, many SMSFs run what is called a ‘pooled’ investment strategy, meaning that the assets of the SMSF are not divided between accumulation and pension phase. The SMSF administrator simply records the proportions for each member/phase behind the scenes and it is recorded in the SMSF financial statements. The alternative is to run a segregated investment strategy, where assets are divided between members/phases. This may be beneficial if members have largely different objectives and risk appetites. Here is an article that goes into more detail https://superguy.com.au/pooled-vs-segregated-assets-smsf/
Regards,
Chris
Hi Chris, I’m 60, I plan to go on annual leave then long service leave for 12 months from Oct 2021 then retire in oct 2022.
Currently I have 1.73 m in my super fund & will have about 200k in savings. When I retire should I leave my super in accumulation mode to continue to grow & live of my savings for 2 years. When I do change to pension mode the balance above 1.7m that stays in accumulation mode, when does the 15% tax on earnings start?
Hi John, thank you for your question. You are currently in an ideal position right now (based on your age and level of retirement savings) for a number of tax-effective retirement strategies. Whether you should be leaving your super in accumulation phase or not right now depends on other factors such as your living expenses, super contributions, etc. The 15% tax on earnings from investments within your accumulation account is already happening and has happened ever since you had an accumulation account. In order to optimise your position now and maximise your savings between now and Oct 2022, I would strongly suggest obtaining personal retirement planning advice, because I am confident the financial benefit achieved from good advice will far outweigh the costs of advice. If you do not have a financial planner, feel free to arrange a complimentary consultation with us at Toro Wealth, by booking in an appointment time here https://calendly.com/torowealth/15mincall
Regards,
Chris
Chris, I am 74 and have a small super balance in an income producing stream. That balance is part of my assets and reduces my OAP accordingly. My wife, who is 63 and fully retired,has a larger balance which we have left in accumulation so as not to become an asset and further reduce my pension. We take an occasional lump sum from her balance for living and travel each. Are there any problems with our strategy?
Hi Brian,
Irregular, ad-hoc lump sum withdrawals from super are generally not assessed as income for Centrelink purposes. Also, as you state, while your wife is under age pension age, her accumulation balance is not assessed for Centrelink purposes.
Without knowing the full situation, I cannot comment on whether any further improvements or opportunities would be available to you both. However, you are welcome to make a complimentary 12-min consultation with us if you are interested in putting together a retirement plan and discussing other strategic options available to you. click here to book https://calendly.com/torowealth/15mincall
Regards,
Chris
Hi Chris,
I am age 65 and my wife is 64. I have retired 2 years ago and my wife has retired 10 years ago. I will be eligible for age pension in October 2022 and my wife 18 months later. We both have accumulation and income stream super accounts. My question is whether all these four accounts will be counted as assets when assessing my age pension eligibility by Centrelink? If not, are there ways to maximise age pension by transferring money between the accounts.
Thanks,
Roy
Hi Roy,
While under Age Pension age, accumulation accounts are not assessed for Centrelink purposes, but income stream accounts are – regardless of age. Super balances are unable to be transferred from one person’s super account to another’s. However, it may be possible to withdraw funds and recontribute them into a spouse’s account. But, to do this, you need to be mindful of issues such as any potential tax implications, contribution caps, etc. So, while withdrawing funds from one persons account and contributing them to another’s can reduce assessable assets for Centrelink purposes and increase Age Pension payments, you need to be sure it is implemented correctly and within the rules. It is possible to navigate through all of this yourself, but unless you have a very good understanding of the rules, it would probably be best to obtain personal advice in the matter. Plus, the benefits of advice will most likely outweigh the cost. If you do not already have an adviser, feel free to make a complimentary 15-min appt with us to see how we can help. Click here to book https://calendly.com/torowealth/video-call
Regards,
Chris
Hi Chris,
I am age 65 and my wife is 64. I have retired 2 years ago and my wife has retired 10 years ago. I will be eligible for age pension in October 2022 and my wife 18 months later. We both have both accumulation and income stream super accounts. My question is whether all those four accounts will be counted as assets when assessing my age pension eligibility by Centrelink? If not, are there ways to maximise age pension by transferring money between the accounts.
Thanks,
Roy
Hi Roy,
Thanks for your question.
While under age pension age, a super accumulation account is not assessed for Centrelink purposes, but income streams accounts are. When over age pension age accumulation accounts and income stream accounts are both assessed. Structuring this correctly can significantly increase Age Pension payments. Super balances are unable to be transferred from one person’s super account to another’s. However, it may be possible to withdraw funds and recontribute them into a spouse’s account. But, to do this, you need to be mindful of issues such as any potential tax implications, contribution caps, etc. So, while withdrawing funds from one persons account and contributing them to another’s can reduce assessable assets for Centrelink purposes and increase Age Pension payments, you need to be sure it is implemented correctly and within the rules. It is possible to navigate through all of this yourself, but unless you have a very good understanding of the rules, it would probably be best to obtain personal advice in the matter. In most cases, the benefits of advice will most likely outweigh the cost. If you do not already have an adviser, feel free to make a complimentary 15-min appt with us to see how we can help. Click here to book https://calendly.com/torowealth/video-call
Regards,
Chris
Hi Chris, great article. Can I ask, if my Mum (under Age Pension age) is receiving an income stream from her super can she convert the income stream back into an accumulation account so that Dad (over Age Pension age) can then apply for the aged pension? Or will Centrelink still count Mum’s money as an asset even if it goes back into accumulation?
Hi Steven,
Thank you for your question.
Balances within a super accumulation account are exempt from Centrelink assessment while the member of the account is under Age Pension age – even if a spouse is over. One the other hand, income streams are assessed, even if under Age Pension age. Therefore, transferring an income stream balance back to accumulation phase can reduce assessable assets and income.
This article will help further https://superguy.com.au/superannuation/how-much-super-can-you-have-and-still-get-the-pension/
Regards,
Chris