Having a basic understanding the different phases that your superannuation goes through during your life can help when it comes to working out the tax treatment of an individual’s fund and any pension they take.
While not directly related, the overall investment strategy of a fund will also tend to change as the super transitions from one phase onto the next.
The lifecycle of superannuation can be divided into three phases; accumulation phase, transition to retirement phase and pension phase.
The accumulation phase is often the longest phase super goes through, running from when an individual starts work until they reach their 50s. The key during this phase, is to save and invest in as much as possible through contributions to super. Individuals can make concessional contributions, which are subject to an annual cap of $30,000 (or $35,000 for those over the age of 49) or non-concessional contributions, which are subject to an annual cap of $180,000.
Even though it is the shortest of the phases, the transition to retirement (TTR) phase is still quite important. A TTR typically starts when an individual turns 55, but individuals can also begin a TTR pension when they reach their preservation age. A TTR allows individuals to reduce their paid working hours (therefore, ‘transitioning into retirement’) and start taking money from their super.
The pension phase is when an individual has stopped accumulating and is now only withdrawing from their savings. The pension phase begins when an individual satisfies a ‘condition of release’. The main conditions of the release are:
- retiring from the workforce at or after your preservation age
- leaving one paid job after age 60
- reaching age 65