Age Pension and super: What changes at 67?

This blog post has been prepared by Retirement Essentials ABN 35 615 383 232 ASFL468859 

While all care has been taken to ensure that the information provided is accurate and complete at the date of publication, neither Retirement Essentials nor its employees accept liability for any loss or damage caused as a result of any use of or reliance on the information. 

Once you reach Age Pension age (currently 67), whether it’s in accumulation or in an Account-Based Pension (ABP), Centrelink will assess your superannuation in the same way. The total balance counts under the asset test, and this balance (which super providers update to Centrelink twice a year around February and August) is deemed to earn income at the current deeming rates used for the income test.

Yet many retirees remain in the accumulation phase well past 67.

Why this matters for tax and strategy

ABPs have a key advantage: investment earnings and capital gains within this income stream are tax-free once they are in the drawdown (spending) phase, up to your transfer balance cap. This compares with accumulation accounts, which generally pay up to 15% tax on earnings and 10% on capital gains.

For example:

Jane, 67, has $500,000 in super. In the accumulation phase, investment earnings of 5% a year may incur $3,750 tax. In the ABP phase, those same earnings are tax-free – a meaningful difference in long-term investment returns when added to Jane’s super balance year on year.

Additional considerations

• Younger spouse: If one partner is under Age Pension age and remains in accumulation phase, their super balance is not counted in the older partner’s Age Pension asset test, which can be a strategic advantage as it increases their likelihood of eligibility.
• Insurance attached to super: Retaining accumulation-phase super may keep life insurance or Total and Permanent Disablement (TPD) and Income Protection cover active, which could justify leaving some funds in accumulation phase.
• Minimum withdrawal rates: ABPs have mandatory minimum withdrawal rates once in the pension phase. Managing partial rollovers from accumulation to ABP can target required cash flow while balancing with Age Pension entitlements together to meet retirement income needs.

Mythbusters: Super and ABPs after 67

Myth 1: I have to retire before I can start an ABP
Fact: Once you’re 65 (or older), there are no cashing restrictions on your superannuation anymore. You can open an ABP even if you’re still working, and you can also keep a super accumulation account active to receive contributions or retain flexibility for investments and insurance. This allows you to manage your Age Pension assessment, and continue growing your super while drawing down a regular income.

Myth 2: I have to move all my super to an ABP
Fact: Some retirees deliberately keep part of their super in accumulation mode to accept ongoing employer contributions, or for the insurance attached. Rolling over only the amount you need into an ABP allows you to manage and control minimum drawdowns, and maintain flexibility for other financial goals.

Myth 3: Once I’m in an ABP, I can’t switch back to accumulation.
Fact: You can roll funds back to accumulation if your circumstances change. This can be done where you have started an ABP, but you have large lump sum contributions to make or accumulated employer contributions. Rolling the funds back to super allows you to combine all the super amounts together. You can then start a new ABP if you wish.

Myth 4: I’m too old to make super contributions.
Fact: Generally, you can make contributions up to age 75. Whether returning to work, receiving a windfall (inheritance, asset sale), or via spousal contributions, you can even open a new super account to accommodate these contributions, keeping your retirement savings tax-effective and continuing to grow with investment earnings.

Understanding the nuances of Account-Based Pensions, super accumulation, and Age Pension assessments can be complex – but you don’t have to navigate it alone.
 

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