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can I retire early?

The temptation and tradition for retirees is take out their super as a lump sum and spend it on new cars and holidays, then sit back and live on the Age Pension.

It might sound like fun, but there are better ways to draw on your superannuation which are tax-effective and help your money last longer during your retirement, called income streams. 

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income streams

A pension is an example of a income stream and there are many different types. The Age Pension is paid by the Government based on your age and your level of assets and income. An account-based pension (also known as an allocated pension) is paid from your super fund, where you decide the amount and frequency within set limits.
An annuity is an income stream, which is ‘purchased’ from a life insurance company.

tax advantages 

Income streams which are funded by, or purchased with, superannuation money receive favourable tax treatment:

  • There is no tax on investment earnings.

  • If you are age 60 or more, withdrawals are tax-free.

  • If you are under age 60, income tax is deducted by the provider. Depending on the type of income stream and/or your age, a tax offset is available.

Compare these tax treatments to the tax on a term deposit or savings account. If returns are equal, your money will last longer.


Account-based pensions and annuities allow you to adjust the amount withdrawn provided a prescribed minimum is taken, and make larger withdrawals. Account-based pensions that can be started before you retire have a prescribed maximum limit.

You also have a say in how the money is invested, with a range of investment options provided for you to choose from.

Centrelink implications

Generally, the account balance is included in your assets test.

Under the income test, the amount you receive is considered income, less an amount which equals the annual return of your capital. With annuities, the deeming rate is used to determine the rate for terms of five years or less. For longer terms, the return on capital is deducted from the income received. 

what happens when I die?

  1. If you nominate a reversionary pensioner, which is done at the start of the pension, then in the event of your death, the pension is automatically paid to the nominated person who must be a dependant under tax law.

  2. If you nominate a beneficiary, which is made at any time and can be non-binding or binding, then in the event of death, your death benefit may be paid as:

  • an income stream to the nominated person who must be a dependant under tax law, and/or

  • a lump sum to:

    • the nominated person who must be dependant under super law, and/or

    • your legal personal representative.

what’s the best option for me

The type of pension or annuity which suits you depends on how long you need the money to last, your investment style and where you would like the money to go after your death. Talking to an ipac financial adviser will help you understand your options and ensure your retirement money lasts longer.

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