Is it worth starting a pension from your super sooner rather than later?

The tax-free retirement phase is the jewel in the crown of the super system. Getting your savings into it is as simple as starting a retirement pension, also known as a retirement income stream.

What many people don’t realise is that you don’t necessarily have to retire from the workforce to start a pension and start enjoying the tax-free benefits. And even if you are retired but have sufficient retirement income outside super, it can still be worth your while to start a super pension.

Barriers to action

How and when to start a pension is a question many people approaching retirement age have difficulty tackling, with eligibility criteria, rules and the required forms and procedures getting in the way of action.

With the benefit of tax-free investment earnings, income payments and the ability to contribute to super until age 75, starting a retirement income stream immediately after becoming eligible is a great deal for almost everyone, but there are some bumps in the road to watch for.

While other retirement income streams are available, we focus here on simple account-based pensions because they remain the most popular and widely available choice.

When am I eligible to start a retirement pension?

The three most common triggers to unlock the retirement phase are:

• Turning 65
• Being at least 60 and permanently retired
• Leaving a job after turning 60, even if you will return to work.

If you leave a job after your 60^th birthday but are not permanently retiring, the super you have accumulated up to that point is accessible and can be used to start a retirement pension. Any future contributions from you and your employer(s) can’t be withdrawn in cash or used to start a retirement pension until you leave work again or turn 65, whichever comes first.

It is also possible to start a retirement pension if you become eligible to access your super early due to permanent incapacity or you’re using a super death benefit you have become entitled to after the death of another person. However, tax may apply to the income payments if you are under 60.

There is also the option to start a transition-to-retirement pension if you have turned 60 but are not retired and have not left a job since your 60^th birthday. Importantly, investment earnings in transition-to-retirement pensions remain taxable.

Reasons for starting a retirement pension

Tax-free investment returns