Summary

The ACSuper Pension is commonly known as an account based pension, which is generally considered a very tax-effective investment for retirees and those nearing retirement. 

If you are at least 60 years of age, the pension payments you receive are tax-free. Any lump sums you withdraw are also tax-free. 

Money in your pension account is invested and will continue to earn investment returns, which are also tax-free.  

In general, your pension is only subject to tax if you are under age 60, and even then the tax is at a lower rate than most other investments. 

To benefit from tax concessions, you will need to supply us with your Tax File Number (TFN). Providing us with your TFN can save you tax. If we do not have your TFN we will have to deduct tax, where applicable, at the highest marginal rate.  

In summary, tax may be applied to your pension at four stages: 

§         At the start when you roll over your super (in certain cases only)

§         On investment returns in your pension account

§         When you draw your pension

§         When you withdraw lump sums or when death benefits are paid out.

We’ll explain more on each below.

Tax when you roll over your super 

To invest in ACSuper Pension you need to ‘rollover’ super money from the ACSuper fund. You cannot use ordinary savings. 

Generally, there is no tax when you roll over, although there are certain cases where tax is charged. These include where you have the following types of super monies (which are uncommon): 

§         The taxable component of a Directed Termination Payment, which is a certain type of lump sum benefit paid to you
     by your employer when your employment is terminated due to retirement, retrenchment, resignation or disablement

§         The ‘untaxed element’ from a super fund (e.g. from an Unfunded Public Sector scheme)

Tax on investment earnings

Investment returns earned in your pension account are tax-free. This is a significant advantage when compared with other investments such as a bank deposits where interest earned are taxed fully at your marginal rate.

Tax on pension payments 

Any tax you have to pay will be deducted from your pension payment before it is deposited to your bank account. 

Tax on your pension payments is based on your age. 

§         If you are age 60 and over 

If you are 60 years and over, your pension payments are tax-free. 

§         If you are between ages 55 – 59 

If you are between the ages of 55 and 59 (in other words, you have reached your preservation age), your payment may be split into a tax-free component and a taxable component.  The taxable component is taxed at 15% (plus Medicare levy) less a 15% tax offset, provided we have your Tax File Number. 

ACSuper will inform you which part of your pension is tax-free and which part is taxable. 

The tax-free component is the sum of: 

§         Personal contributions (after-tax money)

§         Government co-contributions

§         Pre-July 1983 benefits calculated to 30 June 2007

§         Capital Gains Tax (CGT) exempt component

§         Certain amounts of disability benefits received before 1 July 2007 (i.e. the post-1 June 1994 invalidity component). 

We will divide your tax-free component by the total amount you invested in your pension account to arrive at a percentage. This percentage is then applied to work out the tax-free component of each pension payment.  

The taxable component of your pension payment is the balance that is not tax-free.  

Example: Bill is 58 and rolls over $400,000 into the ACSuper Pension. Out of this amount, $100,000 represents the tax-free component. His tax-free percentage is worked out as being 100,000/400,000 = 0.25 (25%). So, each of Bill’s pension payments will comprise a tax-free component equal to 25% of the payment. Assuming Bill’s pension is $18,000 his tax-free component is $4,500 the balance will be his taxable component and taxed at his marginal tax rate plus Medicare levy less a 15% tax offset. 

§         If you are under age 55 

If you are under 55, your pension payments are subject to tax and you will not be able to claim the 15% tax offset. The only exception to this is if your ACSuper Pension was purchased with proceeds from a death benefit. 

The 15% Tax Offset 

If you have reached your preservation age (55- 59) and you have supplied us with your Tax File Number, you are eligible for a 15% tax offset. This can be used to reduce any tax amount you might have to pay on the taxable portion of your pension payments.  

The Tax offset can also be claimed if your ACSuper Pension has been started with proceeds from a death benefit. 

Example: 

Peter’s monthly pension of $1,000 has a taxable component of $700. His marginal tax rate is 31.5% (including M/care levy), so his tax is: 

Tax before tax-offset applied: $700 x 31.5% = $221

15% tax offset: $700 x 15% = $105

Tax after tax-offset: $221- $105 = $116

PAYG Tax

If there is tax on your pension payment, ACSuper will deduct this tax on a PAYG basis in the same way as your normal work income. We will calculate the tax and forward it to the Australian Tax Office. The actual amount of tax withheld from your pension payment will depend on factors such as whether you have claimed the regular income tax-free threshold and whether you are eligible for the 15% tax-offset.


Tax on lump sum withdrawals 

When you withdraw lump sums from your pension account they too will include a tax-free and taxable component and will also be taxed based on your age. 

You pay no tax on the tax-free component of course – provided we have your TFN, but the taxable component will be taxed as follows (note: if you are over 60 your lump sums are tax-free): 

Tax on death benefits 

Tax on death benefits depends on:  

§         whether the recipient is a ‘dependant’ or non-dependant’

§         whether the benefit is paid as a pension or lump sum. If you have nominated a
     reversionary beneficiary, pension payments will continue to be paid to that person.