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Retirement phase income streams

Retirement phase income streams

Section: 16.1

Retirement phase income streams can take the form of pensions or annuities. For superannuation law purposes, there is generally little difference between a pension and an annuity as they are similar income streams but paid from different providers. Super funds generally provide pensions whereas annuities are paid under a contract with a life company or registered organisation.

Prior to the commencement of the superannuation reforms on 1 July 2017, all superannuation income streams qualified for a tax exemption on the earnings on assets supporting the income stream.

However as part of superannuation reform, a new concept has been introduced to make it clear that from 1 July 2017, not all superannuation income streams will be eligible for an earnings tax exemption.

From 1 July 2017, only 'retirement phase income streams' are eligible for an earnings tax exemption. In addition, only retirement phase income streams count towards the transfer balance cap.

Retirement phase income streams

From 1 July 2017, retirement phase income streams include all superannuation income streams, except those listed below:

  • Transition to retirement income streams (and older non-commutable allocated income streams) where the recipient has not satisfied the retirement, reaching age 65, terminal medical condition or permanent incapacity condition of release. If the recipient is under age 65 and has satisfied the retirement, terminal medical condition or permanent incapacity condition of release, the income stream will only be in the retirement phase if the recipient has notified the trustee of the income stream provider that they have satisfied a condition of release.
  • Deferred superannuation income streams where the recipient has not satisfied the retirement, reaching age 65, terminal medical condition or permanent incapacity condition of release. A deferred superannuation income stream is in the retirement phase if the recipient has met an eligible condition of release regardless of whether income stream payments are currently being paid.
  • Income streams where a commutation authority has been issued in relation to an excess transfer balance that a trustee has failed to comply with within the required 60 day period.

If an income stream is in the list of exclusions above, it is considered to be in the accumulation phase of superannuation for the purposes of the earnings tax exemption and the transfer balance cap. However, it is still considered an income stream for other purposes, including the proportioning of tax components and the taxation of  payments from the income stream.

Last modified: Wednesday, May 1, 2019