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Understanding what the difference is between super accumulation vs pension phase

Jodie Humphries avatar
Jodie Humphries
- 4 min read
Understanding what the difference is between super accumulation vs pension phase

During your working life, you’re accumulating funds in your superannuation account, which is why this is called the accumulation phase. As you get closer to retirement, whether you’re retired or are planning to, you may enter the pension phase. There are also times when you may have some of your super money in both the accumulation and the pension phases. So what are these phases, and how do they affect you and your retirement?

Super accumulation vs pension phase: What’s the difference?

There are a few differences between the accumulation phase and pension phase for your superannuation, and each impacts your retirement savings differently. 

Your age and employment status

For most of your working life, your super is in the accumulation phase. During this phase, you and/or your employers are putting money into the account, and you're growing or accumulating these funds through investments. You’ll stay in this accumulation phase until you reach an age or employment status that is also a condition of release for super funds

Tax rates

It's a good idea to know how the accumulation phase versus the pension phase works in terms of your tax liabilities. Tax rates and regulations are different for both. The most important difference is that earnings on your super in the accumulation phase are taxed at 15 per cent, while any earnings you accumulate in the retirement or pension phase are tax-free.  

Preservation age

Until you reach preservation age, your entire super balance is in the accumulation phase. After the preservation age,  you have the flexibility to decide how much you want to keep in the accumulation phase and how much you want to transfer into the retirement or pension phase. Generally, this decision heavily depends on your income needs and tax planning. Moving funds to the retirement or pension phase means you can access it to help fund your retirement.

Transitioning between accumulation and pension phases

If you’ve reached preservation age but still want to continue to work part-time and also access part of your super, you can set up a transition-to-retirement income stream (TRIS). This is sort of a bridge between the accumulation phase, where you’re still depositing funds, and the pension phase, where you’re withdrawing funds. It gives you access to a maximum amount of 10 per cent of your super balance

Finishing the accumulation phase and transferring to the retirement phase

If you’re ready to stop working and retire, you’ll want to set up a super income stream. You’ll need to transfer your super balance from the accumulation to the retirement or pension phase. Before you do this, you’ll need to meet a condition of release. Otherwise, any change in super could get you in trouble with the ATO.  

Once you meet a condition of release, you can use all or some of your accumulation phase balance to set up a tax-free pension. You’ll need to also notify your fund by filling out the forms they have for transferring super. Contact your super fund to access these forms. 

You should be aware that there is a transfer balance cap of $1.7 million on the amount you can transfer to the pension phase. This cap is a lifetime limit on the total super money that can be transferred into retirement phase income streams. If your super balance is higher than this transfer balance cap, you need to continue holding it in the accumulation phase and discuss with a financial advisor your options. 

Once your super is in the retirement or pension phase, you’ll need to withdraw a minimum amount from it each year. This amount varies between 2 and 11 per cent of your balance depending on your age.

What if you need to convert back to the accumulation phase?

While converting super from the pension phase back to the accumulation phase isn’t something you hear of very often, it can happen.

If the pension from your super combined with the income you receive from other sources is more money than you need, you may look for ways to reinvest the surplus. One option is investing in your super again. What this means is that you would like to convert some or all of the funds in your account back to the accumulation phase. You’ll need to do this because you’re not able to accumulate funds in your super account when it’s in the retirement phase. To transfer some or all of your funds back to the accumulation phase, you need to notify your fund and deposit money in the account that is marked as your accumulation phase super to take advantage of the lower tax rate.


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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.