Turning your super into income

Super Informed
07 Dec 2021
5 min read

Preparation is key when considering retirement. We spoke to a UniSuper Financial Adviser about their most asked questions when moving to the retirement phase.

Retirement can be confronting. But like anything, preparation is key. Understanding how you can use your super to start an income stream, will help you achieve a smoother transition to retirement.

We asked Graeme Davy, a Financial Adviser from UniSuper Advice, to share his most asked questions and advice, when it comes to moving from the accumulation phase of super to retirement.

Questions and advice

What do I do with my super at retirement?

It’s important to seek financial advice to help you make an informed decision. Planning and setting up a retirement income stream is a good place to start. It can be an account-based pension, such as UniSuper’s Flexi Pension or, you could purchase a lifetime income stream, like UniSuper’s Commercial Rate Indexed Pension (CRIP):

Flexi Pension 

A Flexi Pension – like the name suggests – is flexible. You can:

  • choose how much and how often you’re paid
  • choose how your money’s invested
  • withdraw additional money when you need it, understanding you must withdraw a minimum payment based on your age (known as the minimum drawdown rate). This is typically 4% under 65 years, 5% for 65 years and over and increases when you get to 75 years and older.  

Commercial Rate Indexed Pension (CRIP)

A CRIP will provide you with a regular income for life, with income payments indexed each year in-line with the Consumer Price Index (CPI). You can use it as your main income or as an extra source of income, to protect you from outliving your retirement savings.

Other options

Your other options are to keep your super in an accumulation account, withdraw your money, or a combination of both.

Setting up an income stream

There are a couple of things worth noting when setting up an income stream:

  • The maximum amount you can transfer from super into a retirement phase income stream (across all your super funds) is between $1.6 and $1.7 million – known as the transfer balance cap.
  • If you’re aged 60 or over, income payments and withdrawals are tax-free.

How do I invest my money in retirement?

If you’re a Commercial Rate Indexed Pension (CRIP) or a Defined Benefit Division (DBD) member, your money is invested for you.

Considerations for Flexi Pension members

If you’re a Flexi Pension member, there are a few things to consider:

  • You need to start producing an income. Consider both short-term and long-term investment strategies. While you might still accumulate capital as a long-term investment, most of your investment timeframe will be short-term.
  • Consider what would happen in the event of a stock market crash in your first two years of retirement - could you manage your position? This is the time when you’re potentially at the peak of your retirement savings.
  • Don’t assume what’s happened in the last couple of years will continue (in good and bad times) and consider the expected risk and return objectives of your investment options, as they point to the most likely outcomes.

What are my options as a Defined Benefit Division (DBD) member?

This will depend on when you joined:

DBD member continuously since before 1 July 1998

If you’ve been a Defined Benefit Division (DBD) member continuously since before 1 July 1998, you can:

A DBIP provides you with a regular income for life, with income payments indexed each year in-line with increases to the Consumer Price Index (CPI). But once you choose it, you’re locked in.

DBD member after 1 July 1998

If you joined the DBD after 1 July 1998, you’ll have the option of:

  • starting a Flexi Pension, a CRIP, or a combination of both
  • keeping your super in your accumulation account, or
  • cashing it out.

DBD members generally have an accumulation component attached to their account, which can be used in different ways. You can combine it with your DB component, use it to start a Flexi Pension or CRIP, withdraw it, or a combination.

How do I stop my money running out?

This is a common concern when preparing for retirement. Here are some tips:

  • Set a realistic budget by accounting for all your lifestyle expenses and unexpected costs and seek advice. Our retirement adequacy calculator is a great place to start.
  • Remember to consider investment risk. Some of your money can still be considered ‘long-term’, so you don’t have to automatically move everything into low-risk investments.
  • Consider diversifying your investment strategy across a range of asset classes, for example, shares, property, fixed interest, and cash.
  • Once you have a plan, track your position regularly. Utilise our advice review service not only at retirement, but throughout your retirement.

How do my personal income streams work with the Centrelink Age Pension?

Centrelink performs an assets test and an income test for the Age Pension. Both tests assign lower limits, under which you can get the full Age Pension, and an upper limit, when your pension reduces to nil.

The assets and income test involves assessing:

  • The value of your assets (excluding your main residence) including (but not limited to) your car, the fire sale value of your home contents, bank balance, super balances, shareholdings, investment property.
  • Your assets that produce an income. Aside from an investment property – where rental income is counted – most financial assets earn a rate of income called a deeming rate, regardless of what’s earned.
  • All income related to (self) employment.

In terms of our retirement products, money in a Flexi Pension counts in full for the assets test, but the income will be calculated in line with the Centrelink deeming rates.

 A  Commercial Rate Indexed Pension (CRIP) can have Centrelink benefits, as a portion of the income payments and purchase amount doesn’t count towards the income and assets tests.

A Defined Benefit Indexed Pension (DBIP) generally doesn’t count towards the assets test, but at least 90% of the income will count towards the income test.

This can be a tricky area to navigate, so it’s best to seek financial advice.

What happens to my money if I die?

If you have an accumulation account or a Flexi Pension, you can nominate one or more of your dependants and/or your legal personal representative to receive your account balance by making a death benefit nomination. If you don’t have a death benefit nomination in place, the Trustee will decide who receives your benefit when you die.

Types of nominations

You can choose one of the following types of nominations:

  • A binding nomination, where your beneficiaries will receive the balance of your pension and any death benefits in the proportions you choose. Your nomination can be lapsing, which means you must update it every 3 years, or non-lapsing, which means it will stay valid until you change or revoke it, or it becomes invalid for another reason.
  • A non-binding nomination, where the Trustee will consider your nomination but isn’t legally obligated to go with who you’ve chosen.

Options

The following options will be available based on which product you’re invested in:

  • Flexi Pensionyou can also choose to make a reversionary beneficiary nomination, where income payments will continue to be paid to your dependant (generally a spouse) after you die.
  • DBIPyour surviving spouse will automatically receive a pension for life and has the option to withdraw some or all the benefit. If you have a dependent child or a child with a disability, they will also generally receive a portion of your DBIP. If you’re single, a DBIP has no remaining value (with limited exceptions).
  • CRIPyou can take out a Joint Life CRIP and nominate your spouse to receive a reversionary pension, equal to the full amount of your income payments for the rest of their life. A residual lump sum will be paid if you, or your nominated spouse, dies within the guaranteed period.

Want to learn more about pensions and retirement?

It can be tough to understand your options.

If you’re interested in finding out more about the next chapter, our Understanding Retirement Income webcast will discuss the types of products available and the considerations when selecting a product that’s right for you.

Discussion points include:

  • pre-retirement considerations
  • pension types
  • how pensions work
  • how we can help
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