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Self-funded retirees

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The Australian government works very hard at encouraging everyone to put money aside for their retirement by investing at least 9% of the employment income a taxpayer receives into a superannuation fund. For many people, a superannuation 'nest egg' means they are able to support themselves in retirement without relying upon the government's means-tested pensions.

However the government has announced that:
  • the SG rate will gradually increase from 9% to 12% between July 1, 2013 and July 1, 2019
  • the SG age limit will be abolished (it was to be raised from 70 to 75 on July 1, 2013, but the government had a change of mind).

People who fund and support their own retirement without receiving any government means-tested pensions are known as self-funded retirees. Just because they're independent, however, doesn't mean they miss out on some of the particular benefits of getting older – self-funded retirees are still able to access concessional rates for travel and health.

Because the government appreciates the efforts of self-funded retirees (who are essentially helping to take the pressure off the pension system by supporting themselves), they introduced a number of taxation relief initiatives, as well as the provision of the seniors health card and the seniors supplement.

Under superannuation law, many account-based pensions are subject to minimum annual payments, which is a set percentage of the balance at the start of the financial year. From July 1, 2009 the government halved the annual minimum amounts self-funded retirees have to draw down from their account-based pensions for 2009-10, extending the drawdown relief provided by the government in 2008-09 and assisting account-based pensions to recover from capital losses associated with the global financial crisis.

This was later extended into 2010-11. People under 65 with a $1 million balance usually have to draw a minimum 4% each year, but the relief halves that to 2%. The relief is an additional attraction to private pensions (but after July 1, 2011, minimum draw down amounts will reduce by 25%, and from July 1, 2013 will revert to the statutory amounts ... but check with your financial adviser).

Age Minimum % withdrawal for 2010-11 Minimum % withdrawal for 2011-12, 2012-13
 Minimum % withdrawal for 2013-14 and future years
Under 65 2% 3% 4%
65-74 2.5% 3.75% 5%
75-79 3% 4.5% 6%
80-84 3.5% 5.25% 7%
85-89 4.5% 6.75% 9%
90-94 5.5% 8.25% 11%
95 or older 7% 10.50% 14%

People over 60 can use an account-based pension to generate tax-free earnings from their capital tax-free income, and still withdraw lump sums.

Additionally:
  • superannuation paid from a taxed source is tax-free for people over age 60
  • the senior Australians tax offset reduces tax liabilities – many seniors pay no tax or Medicare levy
  • mature age worker tax offset of up to $500 encourages workers over age 55 to keep working. The offset is payable on net income from working up to $63,000.
  • people of 'preservation age' (55 if born before July 1, 1960 to 60 if born after June 30, 1964) who are taxed on their pension income may be entitled to a tax offset of 15% so that the effective tax rate is reduced.

Last reviewed 8/08/2012