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.
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.
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 you 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 $1.7M in super
If your total super balance exceeds the Transfer Balance Cap (currently $1.7M), 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.
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.
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.
3. Potential death benefits tax
No death benefits tax is paid on investments owned outside of super in your individual name.
Is Super in Accumulation Phase Deemed?
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.