Understanding the difference between super accumulation vs pension phase

There are important differences between your superannuation’s accumulation phase and pension phase, which can affect your retirement savings: 

Your age and employment status

For most of your working life, your super is in the accumulation phase. During this phase, your employers are putting money into the account through the super guarantee, supplemented by any extra concessional contributions (aka salary sacrifices) or non-concessional contributions you make, This money is invested into assets to earn returns that further grow your balance.

You’ll stay in this accumulation phase until you reach your preservation age or satisfy a condition of release for super funds.

Tax rates

Tax rates and regulations are different for your super fund’s accumulation phase versus the pension phase. Earnings on your super in the accumulation phase are taxed at 15%, 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 reaching your preservation age, you can decide how much you want to keep in the accumulation phase and how much you want to transfer into the retirement or pension phase to help fund your retirement. How much you’ll want to transfer will depend on your income needs and tax planning.

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 a bridge between the accumulation phase, where you’re still depositing funds, and the pension phase, where you’re withdrawing funds, giving you access to a maximum amount of 10% of your super balance

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 some or all 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 $1.9 million on the amount you can transfer to the pension phase as of 2023. 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 your options with a financial advisor.

Once your super is in the retirement or pension phase, you’ll need to withdraw a minimum amount from it each year. As of 2023, this amount varies between 4% and 14% of your balance depending on your age.

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. This may require you to convert some or all of the funds in your account back to the accumulation phase, as 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.