Account-Based Pensions before Age 60

As the final Ruling provides that a member may exercise the election under Reg 995-1.03 (to treat a payment from an income stream as a superannuation lump sum rather than as a superannuation income stream benefit), whether or not the payment arises from a commutation, it is now possible to have payments from an account-based pension paid before age 60 taxed as superannuation lump sums rather than as pension benefits.

The obvious advantage is that superannuation lump sums received in the period from preservation age to age 60, while taxable, are not taxed if they fall within the low rate cap threshold.  Consequently, it is possible to receive up to $180,000 worth of superannuation lump sum payments and pay no tax.  This strategy applies to the extent the low rate threshold has not been exhausted.

This strategy only applies to account-based pensions and not to transition to retirement income streams.  This follows as the former permits cashing out while the latter cannot be cashed out before an unrestricted release condition occurs – such as attaining age 65.