Superannuation – Retirement Phase Vs Accumulation Phase

Written on the 19 September 2023 by Parkside InvestorPlus

Superannuation has always been a long-term investment designed to carry you through into two key phases of your retirement life.

First, there’s the accumulation phase then followed by a retirement phase; however, these aren’t mutually exclusive phases, i.e. it’s not about one or the other.

You can have some of your super in an accumulation account and some in a retirement account in your retirement.

Understanding the difference is important though, as each phase has different tax treatment, rules and potential strategies.

In this article I’ll briefly discuss the difference between the two phases and tax implications.

Accumulation Phase

As the name suggests, this is the phase of your superannuation where savings are held during your active working life – the time to accumulate retirement savings.

When you enter the workforce, you must choose a super fund or accept the default MySuper fund offered by your employer.

In this phase, your accumulation account with default MySuper fund can then accept compulsory Super Guarantee contributions from your employer or business.

You can also make personal contributions, directly or via a salary-sacrifice arrangement with your employer.

All these contributions and the earnings on them during the accumulation phase are locked away – or ‘preserved’ – until you reach your preservation age and retire, or you may meet another condition of release.

All earnings from the investments within your super account in the accumulation phase are taxed at up to 15%.

However, if you have other investments in your fund during the accumulation phase and were to sell them off, there may be some tax benefits, as long as the investment was held longer than 12 months. 

There are many nuances regarding how tax is then applied, which I would suggest needs the input of a professional and qualified financial planner to assess.

Retirement Phase

The retirement phase (formerly called pension phase) begins once you have retired or have met a condition of release and start withdrawing your super as an income stream. 

Adding to the mix, depending on your age and other circumstances you may still be working full or part time in the defined ‘retirement phase’.

Super savings are transferred into the retirement phase when a member commences a super income stream (or pension).

There is currently a cap of $1.9 million that can be transferred into the retirement phase (known as the transfer balance cap). Amounts above this cap may remain in accumulation phase or can be withdrawn from super entirely.

As outlined in the 2023 Intergenerational Report from the Treasury, it states that super will be the primary source of retirement income for future retirees.

The total number of Australians of pension age and over is expected to stand at some 9 million by 2062–63, however, the proportion of those who will receive a government pension or other income support payment will decline around 15 percentage points by 2062–63.

The report stated;

This reflects a shift towards superannuation as a key source of retirement income and the role of the superannuation guarantee in reducing reliance on the age pension

As of August 2023, treasurer Jim Chalmers stated, there is a big challenge to be addressed in terms of the absence of literacy and options when it came to retirement products in the drawdown phase of super.

Superannuation and the everchanging rules and regulations around it, can be overwhelming for everyday Australians.

If you’d like a review of your current superannuation status and balance, and more importantly, your next steps to ensure a fruitful retirement phase, contact Parkside InvestorPlus on (02) 9899 4899.