Superannuation, Retirement Pension and your age limits

Superannuation, Retirement Pension and your age limits

Just recently I have received this question:

Hi Katherine, I like how you explain points. I have a question?… say you’re retired and in an allocated pension already., can you open up a 2nd super fund and use the 2nd as an accumulation fund? And at what age can you no longer contribute to any pension fund? Thanks 😊

Well, what a great question and as you can see it is impossible to reply in one sentence, so I have decided to prepare the full explanation of this topic, as I am sure many people might be wondering about those rules.

So today we are talking about income streams and superannuation when a person has already retired, and what are the rules for those products from the legal standpoint.

Let’s start from the beginning:

Superannuation:

The best to start is right here: What is Superannuation? How does super work?

I have already created over 45 videos and articles just on the topic of super, so lots of information available for you already on my YouTube channel or on my website.

But let’s review the contributions rules:

• If you are below the age of 67, generally any type of the superannuation contributions are accepted by the super fund, subject to the annual contribution limits or what we call annual caps.

Before 2020-21 the age limit was 65, but there are two reasons for extending the contribution eligibility age:

1. We live longer, we work longer and because of this, we need more money in our super funds, to provides us with an income support for longer.

2. Making the contribution limit age equal to the Age Pension age, as most people will try to match their retirement date with the time of becoming eligible for the Age Pension benefit.

The only exception to the above rule is the downsizer contribution that is only available for people aged 55 or older.

This is the allowance from 1st January 2023, as the previous age limit was 60. There is no maximum age for the downsizer contributions.

• For people 67 till 75th birthday, the contribution rules are a little bit tricky. You can still add extra money as your personal post tax contribution.

If however you would like to add contributions as a salary sacrifice or personal where you claim tax deduction, you need to meet a work test. I might explain this in another video though.

• After you reach the age of 75, only mandated employer contributions and your downsizer contributions are accepted by the super fund.

If you want to learn about the employer Super Guarantee (SG) contributions, this is the place to start: Concessional contributions to super – what is SG

If you want to understand the rules of the downsizer contributions: Downsizer Contribution to super – who can benefit and Downsizer Contribution to Super for better retirement.

Just please keep in mind that those videos are already a year old, all the information is correct, but from the 1st January 2023, the age eligibility has been decrease from 60 down to 55.

So those are general rules in relation to your age and your ability to contribute to your superannuation.

Pension:

Once we get to the stage of wanting to stop working, often we look to move the superannuation savings from that accumulation phase that is super, to a pension phase, therefore some kind of an income stream, so we can start receiving an income to cover all our ongoing living expenses.

So let’s now see the rules of commencing an income stream from the age limits:

• The general retirement age is still 65. This is the time when you can do whatever you wish. Move your super to an income stream and start receiving a tax-free income payment, make full or partial withdrawals or leave funds in super altogether – it is all your choice.
• But often people would like to retire earlier or have access to their super savings earlier. Generally, there are only two options:

1. You are aged 60 – 65 and still working, your only way to access any money from your super is via Transition to Retirement Pension, but there are strict limits of your access to those savings – this is all explained in my article: Can I access super and continue working? TTR

2. You are aged 60-65 and stopped working, therefore retired – then you have no restrictions to access your super savings, you can make tax-free withdrawals, or you can commence an income stream.

There are number of videos already available to you explaining various forms of income streams in retirement.

So here we go, very fast overview of age limits of contributing and withdrawing from your super.

Based on the information I explained before, now it should be easy to answer our original question.

If you are retired already, you can still open a new superannuation account, subject to meeting the age eligibility I’ve just explained.

As a matter of fact, as long as you are within the age range, you can decide how you wish to split your savings:

1. You can keep all your savings in super for as long as you wish, there is no rule that you have to move funds to an income stream at all. It would be a bit silly though, considering that the pension account is 100% tax-free haven, no income tax, no capital gains tax, no tax payable on your pension payments,

2. You can transfer only a portion of your super to a pension account and keep the rest in super, if this is a better strategy for you

3. If you already have savings in any kind of an income stream, so you have retired, but you are within the allowable age to make contributions, you can always open a new superannuation account and make your contributions up to the limit.

4. If you have retired and you moved money to an income stream, you can move them back to super if needed

5. If you already retired, there is no rule you have to have one income stream, as a matter of fact you can have as many as you wish, which often I could recommend to my clients for the purpose of assets security, income protection, diversity or Age Pension benefits.

6. The same applies to your super, there is no rule that says you can only have one super account, you can have as many as you need.

• Super funds advertise superannuation consolidation as a highly recommended strategy as you can save on ongoing fees. And sometimes it is correct, however often there are reasons why I would recommend more than one super account, and in most cases, this is for estate planning or tax reasons.
• As you can see some parts of super and pension rules are simple in isolation, but putting this together can be quite a challenge. If this is you, and you find setting up your savings a bit difficult to gain the best benefit now and, in the future, you can always book a meeting with me via my website to review, update, improve your financial or retirement planning.

 Retirement is a Journey not a Destination, so be well prepared for the Ride