Explaining Commutable and Non-Commutable Allocated Pensions

Financial Adviser's picture

Allocated Pensions provide you with a flexible and tax effective ways to generate regular income payments in retirement, all the while retaining the ability to make lump sum withdrawals at any time (as long as they remain within product limits). The main advantage of Allocated Pensions is their flexibility. You are able to choose the amount of income you receive, subject to minimum rates.

Taxation of Allocated Pensions 

  • If you are 60+ years old, all pension payments and lump sum commutations taken from an Allocated Pension are tax-free. 
  • If you are 55 – 59 years old, the pension payment comes with a 15% tax rebate on the taxable portion.

 Key Question                                                            Allocated Pension

Is my income guaranteed for life?                          No
Is my income payable for a fixed income?            No
Can I choose the amount of my income
payments? (within limits set under Federal
legislation)                                                                   Yes
Can I choose the frequency of my income
payments?                                                                   Yes
Do I have access to lump sum withdrawals
or commutation at any time?                                    Yes
Do I have investment choice?                                  Yes
Do my investments carry a level of risk?                Yes
Are my investment earnings tax-free?                     Yes
Is my income indexed in line with inflation
(CPI – Consumer Price Index)?                                No
Does my income stream qualify for the
15% pension rebate if I am under 60?                    Yes
Is the purchase price of my income stream
assessable under the Centrelink Assets
Test?                                                                              Yes
Does any unused capital pass onto my
estate or legal personal representative?                Yes 
Do I have an option to nominate a binding
or nonbinding death benefit nomination?               Yes
Can I elect a reversionary beneficiary?                    Yes
 

Commutable and Non-Commutable Allocated Pensions 

Commutable Allocated Pension -  If you have reached the preservation age of fifty-five and have retired, or have reached sixty-five (regardless of whether you are still working or not), you qualify to establish a Commutable Allocated Pension.

Under a commutable allocated pension you are required to withdraw a minimum amount each year, but you can withdraw up to the total account balance at any time.

Key features of a commutable allocated pension:

• Pension payments are tax-free for those over the age of sixty.

• Lump-sum withdrawals are tax-free for those over the age of sixty.

• Income tax rates are reduced for those who are under the age of sixty and have retired.

• The income stream can be flexible and consistent. 

Non-Commutable Allocated Pension - A non-commutable allocated pension is also called a Transition to Retirement Pension. If you have reached your preservation age you can access superannuation benefits without retiring from the workforce. And, you can continue to contribute to your superannuation account while at the same time drawing income through a Transition to Retirement Pension.

Minimum and maximum amounts are set by legislation, and lump-sum withdrawals can only be made under certain conditions. Key features of a non-commutable allocated pension:

• Superannuation funds can be accessed prior to retirement.

• Additional cash flow can be generated.

• Pension payments are tax-free for those over the age of sixty.

• Tax rebates are available for those under the age of sixty. Of course if you do not wish to change your pension amount at this time, then you do not need to take any action.

Speak to our Financial Advisers to see what option is best for you.