The most popular type of superannuation pension is an account-based pension, which is also the main type of super pension available to retirees.
The technical term for a superannuation pension is a ‘complying pension’ (that is complying with the superannuation rules).
A superannuation pension is also known as a superannuation income stream, and is sometimes called a retirement income stream. Superannuation pensions are typically super accounts in retirement phase.
Retirement phase means the super account is paying out a super pension (with minimum payments each year), which then entitles the super account to tax-exempt pension earnings (for more information, see special SuperGuide section Retirement phase (formerly called Pension phase)).
Although the main type of super pension is an account-based pension, other super pension types are available. Note that while some older pension types may still be in operation, they are no longer available as new pensions.
Note: For information about the government-funded Age Pension, see SuperGuide section Age Pension: The super guide.
The types of superannuation pension available include:
- Account-based pension
- Transition-to-retirement pension (TRIP)
- Defined benefit pension
- Superannuation death benefit pension
- Reversionary pension
- Assets-test exempt pension (including market-linked pension and term allocated pension)
- Allocated pension
- Annuity (not a super pension but can purchase one with super money)
Most super pensions are account-based pensions. An account-based pension is a flexible retirement income stream that gives you unlimited access to your capital but no guarantees on how long the money will last.
You must withdraw a minimum amount (based on a percentage of the pension account balance) as a pension payment each financial year. The size of the account balance will depend on the starting balance, and how the pension assets are invested. For more information about account-based pensions, and the special payment rules, see SuperGuide sections Taking a super pension and Minimum pension payments.
Transition-to-retirement pension (TRIP, also known as TRIS)
If you’re under the age of 65, and you want to access some of your super money, but you’re not ready to retire from work yet, you may consider a transition-to-retirement phase (TRIP).
Although a TRIP is a super pension, a TRIP is not treated as a pension in retirement phase under the super laws, which means a TRIP is not eligible for tax-exempt earnings on fund assets. Also, you can withdraw no more than 10% of your TRIP account balance each year (for more information, see the special SuperGuide section Transition-to-retirement pensions (TRIPs)).
Defined benefit pension
Defined benefit pensions are usually indexed super pensions, paid for the life of the fund member, and sometimes for the life of the spouse of the fund member, if the fund member dies. An indexed pension is an income stream that increases in line with inflation of increases in in line with increases in average weekly earnings.
Defined benefit pensions are paid by defined benefit funds, typically linked to employment in the public sector, or companies with older super funds. Defined benefit pensions are not that common anymore. Apart from certain sections of emergency services, defined benefit pensions are usually only still available for long-term members of older public sector funds, or company super funds, or retired members of such super funds. (for more information about defined benefit pensions, see SuperGuide article Defined benefit pensions and the $1.6 million transfer balance cap).
Superannuation death benefit pension
A super fund may also be able to pay a superannuation death benefit pension, but this only happens when a fund member dies and the pension is payable to certain dependants of the fund member. Not all super funds pay out death benefit pensions, and are more likely to be paid by SMSFs, and older defined benefit funds. The capacity to pay a death benefit pension is generally limited to specific dependants, typically a spouse or children dependants (under the age of 18) (for more information see special SuperGuide section Superannuation death benefits and SuperGuide article Superannuation death benefits and the $1.6 million transfer balance cap).
If a fund member is receiving a super pension, and then subsequently dies, some super funds permit the pre-existing super pension to be reverted to the beneficiary (typically, the fund member’s spouse). This type of pension is a reversionary pension, which is slightly different from a death benefit pension (for more information, see SuperGuide articles Death benefits: Is a binding DBN different from a reversionary pension? and Superannuation death benefits and the $1.6 million transfer balance cap).
For some retirees who started super pensions before September 2007, they may have a full or partial assets-test exempt income stream (gives you access to a greater amount of Age Pension entitlement). An assets-test exempt pension are non-commutable lifetime pensions, or non-commutable life expectancy pensions. Non-commutable means that the super pension cannot be commuted (converted) into a lump sum. Partial assets-test exempt income streams are also known as market-linked pensions or term allocated pensions. These types of super pensions have both minimum and maximum payment requirements.
Not many allocated pensions still exist, and if they do, they can be found in older SMSFs. The allocated pension is the predecessor to the account-based pension. The allocated pension has minimum and maximum payment requirements.
Although not a super pension, you can purchase an annuity with superannuation money. The key difference with an annuity (compared with a super pension), is that you can guarantee the amount of income you receive each year. Depending on the product, and depending on prevailing interest rates, such a product can be expensive, but it depends on how much ‘peace of mind’ is worth to you. The federal government is encouraging more flexible annuities to give retirees more options (for more information on annuities, see SuperGuide article Peace of mind, at a cost: 10 things to know about annuities).
For more information…
For more information about the types of super pensions available, and the super pension rules, see the following SuperGuide links: