Pension withdrawals
Super 101 | Date Posted 2 December 2024
Retirement is the time for hard-earned freedom. An account-based pension allows you to receive a regular, tax-effective retirement income. Drawing a regular income from your pension account can be as simple as ‘set and forget’. With the flexibility to nominate the payment frequency and amount, the comfort of a regular and reliable income isn’t to be underestimated. Account-based pensions also provide for lump sum withdrawals, where you can withdraw money to cover expenses such as holidays.
Adviser Susie Gyler from Mine Super Financial Advice looks at some of the options around lump sum withdrawals and how changes to your regular payments can impact your age pension entitlements.
“First up, it’s important to cover off on the basics of account-based pensions. You can choose the frequency and amount of your pension payments, within minimum annual limits set by the government, which is great as it takes the guess work out of things and provides peace of mind that a regular income is on its way,” said Susie.
Did you know? Your online account shows your minimum annual payment amount and enables you to change your payment amount and / or frequency. For lump sum withdrawals you’ll need to use a form, but once you've made an initial withdrawal using the form, you'll have easier access to the money in your account and can make subsequent withdrawals over the phone.
“The next thing is how your money is invested. With account-based pensions, if you don’t make a choice, your money will be automatically invested in the Balanced investment option. You can find out more about Mine Super’s investment options by visiting our website”, continued Susie.
Which investment options can lump sum withdrawals come from?
There are essentially two type of options to invest or withdraw money: pre-mixed investment options or single asset class investment options. Pre-mixed options are invested in a combination of asset classes, such as shares, fixed income, infrastructure and property. If you withdraw money from a pre-mixed option, the amount will be withdrawn proportionately from all the asset classes based on the option’s percentage mix.
Single asset class investment options are invested in a single asset class, for example the Australian Shares investment option is only invested in Australian shares. You can invest in multiple single asset class investment options and create your own mix of asset classes.
The benefits of creating your own mix
Unlike pre-mixed options, creating your own mix allows you to choose which asset class you then want your money to be withdrawn from. A common strategy is to invest in a range of single sector options, with some money in the Cash investment option to pay your pension payments and lump sum withdrawals.
“For example, some retirees may move some of their money into the Cash investment option and then make lump sum withdrawals from this option. This can reduce the impact of market volatility on pre-mixed options, which have a greater likelihood of regaining their value over the long term,” said Susie.
A few things to consider if you receive an Age Pension
If you receive an Age Pension, either part or full, prior to making a withdrawal from your account you need to consider the potential impact to your Age Pension benefit. This is particularly true for those who held an account-based pension before 1 January 2015 and have been on a pension or allowance without a break since 31 December 2014. These legacy accounts are subject to different income treatment when compared to current pensions. If you’re getting a reduced pension due to the income test, it may be worth reviewing with an adviser to see if there is a better option for you.
If you change your pension payments, this will potentially have an impact on your entitlements. For example, if you increase your payments, it may reduce your Age Pension and vice versa. Keep in mind you only have 14 days to update Centrelink of any changes to your current financial situation.
Turn to Mine
If you have any questions about your pension or what strategies might work to help you make the most of your money, you can reach us on 13 64 63, Monday to Friday, 8am to 6pm, or contact us via our website. We can also put you in touch with Mine Super Financial Advice for additional support to help you decide what’s right for you. Mine Super members are entitled to a complimentary appointment. And did you know? Advice on how your account is invested is at no extra cost, but there are fees associated with providing personal financial advice. During your appointment your adviser will discuss the fees and how you’d like to proceed.
Meet the team or request an appointment with Mine Super Financial Advice.