Once you reach Age Pension age, your superannuation is generally counted under both the Assets test and the Income test. The balance counts as an asset, and deemed income from the balance counts under the Income test.
There is an important exception if you have a younger partner. If your partner is below Age Pension age, their superannuation is generally not counted while it remains in accumulation phase. Different rules apply if they start an income stream from their superannuation.
This guide explains how superannuation in accumulation phase, account-based pensions, a younger partner’s superannuation and other retirement income streams can affect your Age Pension.
How does super affect the Age Pension?
How your superannuation is assessed depends mainly on your age, your partner’s age and whether the money remains in accumulation phase or is being used to provide an income stream.
| Your situation | Assets test | Income test |
|---|---|---|
| Your superannuation in accumulation phase, after you reach Age Pension age | Balance generally counted | Balance generally subject to deeming |
| Your account-based pension | Balance generally counted | Balance generally subject to deeming |
| Younger partner’s superannuation in accumulation phase | Generally not counted while your partner is below Age Pension age | Generally not deemed while your partner is below Age Pension age |
| Younger partner’s account-based pension | Generally counted | Generally assessed under the income stream rules |
| Certain lifetime income streams | Concessional treatment may apply | Concessional treatment may apply |
| Defined benefit pension | Generally not assessed as an account balance | Pension income is assessed under specific rules |
What happens to my super once I reach Age Pension age?
Your Age Pension age and the age you can access your superannuation are different. The Age Pension age is 67. Your preservation age is the age from which you may be able to access your superannuation if you meet a condition of release. For anyone born from 1 July 1964, preservation age is 60.
Reaching preservation age does not itself determine how your superannuation is treated for the Age Pension. Your Age Pension age is the important age for an accumulation account.
Once you reach Age Pension age, the value of superannuation you hold in accumulation phase is generally included in the Assets test.
Your accumulation balance is also treated as a financial investment under the Income test. Rather than using the actual investment return earned by your superannuation fund, Services Australia applies the deeming rules to work out how much income to assess.
What if I have an account-based pension?
If you use your superannuation to start an account-based pension, the account balance generally counts under the Assets test and is subject to deeming under the Income test.
This means Services Australia generally does not use the amount you actually withdraw from your account-based pension as your income for the Income test. Instead, deemed income is calculated from the value of the account.
Some account-based pensions that started before 1 January 2015 may continue to be assessed under the older rules if they meet the grandfathering requirements.
What if my partner is under Age Pension age?
If you have reached Age Pension age but your partner has not, their superannuation can be treated differently from yours.
Superannuation belonging to a partner below Age Pension age is generally not included in the Assets test while it remains in accumulation phase. It is also generally not subject to deeming under the Income test.
This applies even though your partner’s other income and assets are generally taken into account when Services Australia assesses you as a couple.
Once your partner reaches Age Pension age, their accumulation balance will generally become assessable under the Assets test and subject to deeming under the Income test.
If your younger partner starts an income stream from their superannuation before reaching Age Pension age, different rules apply and the income stream may become assessable.
Does moving super into pension phase improve my Age Pension?
Not simply because you have moved the money from accumulation phase into an account-based pension.
Once you have reached Age Pension age, both superannuation in accumulation phase and an account-based pension are generally included in the Assets test and subject to deeming under the Income test. Moving the same money from one phase to the other therefore does not usually remove it from the Age Pension means tests.
For a partner under Age Pension age, the effect can be the opposite. Starting an income stream can bring superannuation that was not counted into the means tests.
Other types of retirement income streams are assessed differently, as explained below.
How are lifetime income streams treated?
Certain lifetime income streams bought on or after 1 July 2019 receive concessional treatment under the Age Pension means tests if they meet the relevant rules.
Under the Assets test, generally 60% of the purchase price is assessed until you turn 84, or for at least five years after you buy the product, whichever is later. After that, generally 30% of the purchase price is assessed.
Under the Income test, generally 60% of the payments you receive from a qualifying lifetime income stream are assessed as income.
This concessional treatment means a qualifying lifetime income stream can have a different effect on your Age Pension from holding the same amount in an accumulation account or account-based pension. However, these products also have different investment, withdrawal and estate planning features that need to be considered.
What about defined benefit pensions?
Defined benefit pensions are treated differently from account-based pensions.
A defined benefit pension does not generally have an account balance that is assessed under the Assets test in the same way as an account-based pension.
For the Income test, Services Australia generally assesses the pension payments you receive, less any deductible amount that applies under the rules. Special rules and limits can apply to the deductible amount for defined benefit income streams.
What happens if I withdraw a lump sum from super?
Taking money out of superannuation does not necessarily reduce your assessable assets. What matters is what you do with the money after you withdraw it.
- Put it in a bank account: the money will generally continue to count under the Assets test and will be subject to deeming under the Income test.
- Invest it in shares or other financial investments: the value will generally count under the Assets test and be subject to deeming.
- Spend it on living expenses or a holiday: money you have spent is no longer an asset, although Services Australia may consider whether the transaction falls under other rules.
- Spend it on your principal home: because your principal home is generally exempt from the Assets test, using assessable assets for home improvements may reduce your assessable assets.
- Give it away: the Age Pension gifting rules may apply.
What if I give some of my super to my family?
Withdrawing money from superannuation and giving it to children, grandchildren or someone else can be treated as gifting by Services Australia.
You can generally give away up to $10,000 in one financial year, and up to $30,000 over five financial years, without it being treated as a deprived asset. The same limits apply whether you are single or a couple.
If you give away more than the allowable amount, the excess can continue to be counted as an asset for five years from the date of the gift. Deeming is also applied to the excess amount for the Income test during that period.
This means giving money away does not necessarily reduce your assessable assets or increase your Age Pension straight away.
Summary
Once you reach Age Pension age, your superannuation in accumulation phase and any account-based pension are generally counted under the Assets test and subject to deeming under the Income test.
An important exception applies if your partner is below Age Pension age. Their superannuation is generally not counted while it remains in accumulation phase, although different rules apply if they start an income stream.
Lifetime income streams, defined benefit pensions and some older income streams can be assessed differently. If you withdraw money from superannuation, what you do with the money afterwards will usually determine how it affects your Age Pension.
The information in this guide is general in nature.