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Withdrawing Your Super Series 4 - Lump Sum verus Pension?


I want to withdraw my superannuation. What do I need to consider?

There may be a number of reasons why some people withdraw their superannuation benefit as a lump sum versus a pension and tax is one of the most significant determining factors.

Step 4: Do you really need all of the money now as a lump sum, or should you it be paid to you in the form of a pension?

There are big differences in the way pensions and lump sums are taxed for people under age 60. Either option could be the better option for you and is dependent on your individual circumstances.

As an example, a lump sum usually gives a better tax outcome where the beneficiary has a high taxable income or there is a large taxable component to their superannuation account. Whereas a pension may give a better outcome where the beneficiary has a superannuation balance with a large tax-free component.

Superannuation monies in p"ension phase"  do not attract a 15% tax on earnings, in proportion to the percentage of funds in pension. This could potentially save thousands of dollars, and makes the financial case for taking a pension significantly stronger. This means that pensions almost always give a better tax outcome once the member is over 60.

It goes without saying that establishing a pension (or leaving the money in accumulation phase)  keeps the money in the super environment longer.

There are a number of other important considerations when deciding whether to take a pension or lump sum, so we recommend you speak with a qualified and licensed professional to obtain personal dvice prior to entering into any arrangement.

If you are member of an SMSF, pension withdrawals over certain limits are available to your trustee in the event of bankruptcy; while lump sum withdrawals are protected. (You can't run a self managed superannuation fund if you are bankrupt).

The earlier you start to think about and plan for your retirement, the more options are available as anypayment from super will most likely affect centrelink eligibility.

Our next article will highlight the difference between taxation of lump sump and pension payments.

General Advice Warning: Liability limited by a scheme approved under Professional Standards Legislation.This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal taxation and financial advice prior to acting on this information.  Opinions constitute our judgments at the time of issue and are subject to change. Neither, the Company or any of employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.

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