The accumulation and retirement phases of superannuation

Superannuation is a lifelong savings system designed for long-term growth, but its rules and benefits change fundamentally once you stop working.

While most Australians concentrate on building their super, fewer are prepared for the transition that follows.

Understanding the shift from the accumulation phase to the retirement phase, and planning for it, can make a significant difference to the income and flexibility you enjoy in later life.

At First Financial, we understand superannuation plays a crucial role in preparing for retirement. No matter where you are in life, it’s worth knowing how each phase works, what the rules are, and what steps to take as you get closer to retiring.

As the name might suggest, the accumulation phase is the period where you build your super balance. It usually begins when you start working and continues through to retirement.

During this time, contributions can come from a few sources, including your employer’s compulsory payments (Super Guarantee), salary sacrifice or after-tax personal contributions.

The aim is to grow your retirement savings steadily through regular inflows and the benefit of compounding returns over time.

A big part of what makes super so effective as a long-term savings tool is the way it’s taxed during the accumulation phase. Most contributions, whether they come from your employer or through salary sacrifice, are taxed at 15 per cent. For most people, that’s lower than what they’d pay otherwise. The same rate applies to investment earnings inside your fund—things like interest, dividends and capital gains.

During this phase, investment focus is usually on long-term growth and the benefits of compounding. Super funds offer a mix of options, so members can choose investments that suit their risk tolerance. For example, many people move to more conservative settings as retirement nears to help reduce exposure to market volatility.

Once you’ve reached a point where your super can support the lifestyle you want in retirement and you’re ready to step away from work, you enter the retirement phase.

From here, investment earnings like interest, dividends and capital gains are no longer taxed. Withdrawals are generally tax-free too, as long as you’re over the age of 60. This shift makes super even more tax-effective and gives retirees access to their savings without the drawback of ongoing tax on earnings.

Typically, retirees choose to start an account-based pension. It lets you draw a regular income from your super while the rest stays invested.

These pensions are flexible, and you can decide how much to take and how often, within the limits set by the government. Whatever’s left in your fund can keep growing, though it still depends on how the market performs and where your money’s invested.

There are minimum drawdown rates based on your age and set by the government. This means you must withdraw a certain amount from your pension account each year. At present, these rates start at four per cent from age 60 and increase as you get older. While they ensure funds are used for retirement purposes, they can affect long-term planning when market conditions are volatile or your spending needs are lower than expected.

To access your superannuation, you must meet certain conditions of release, including reaching preservation age and retiring. Preservation age ranges from 55 to 60, depending on your year of birth.

You can also access your super after turning 65, whether or not you’ve retired. Other conditions include permanent incapacity, terminal illness or accessing super through a transition-to-retirement strategy if you’re eligible.

The process of moving from the accumulation phase to the pension phase isn’t automatic. You’ll need to contact your super fund and request the change—a step many Australians tend to overlook. After that, your fund will typically ask you to fill out a form and confirm you’ve met a condition of release.

Until everything is finalised, your balance stays in the accumulation phase and continues to be taxed as usual. If you’re wondering whether this transition might affect fund structure or compliance, the answer is—it can. Moving into pension phase may change how your fund operates, especially if you’re in a self-managed super fund (SMSF). It’s a good time to review your investment strategy and make sure it still suits your income needs and appetite for risk. You should also check any insurance held inside super and ensure all fund documents, including your trust deed and reporting requirements, are up to date.

Whether you’re with an industry fund or running an SMSF, this stage is best navigated with the support of an experienced financial adviser.

It’s possible to hold both an accumulation account and a pension account at the same time. This can be useful for tax or estate planning in certain situations.

For instance, if you’re still contributing to super but also want to start drawing an income, leaving part of your balance in accumulation allows ongoing contributions without breaching pension rules. As mentioned earlier, earnings in accumulation are taxed at 15 per cent, while those in pension phase are tax-free.

Depending on your balance, tax position and retirement goals, this kind of split setup may be worth discussing with your financial adviser.

As retirement gets closer, it’s worth keeping an eye on contribution limits. A lot of people look to top up their super in their final working years, but you’ve got to stay within the caps or risk extra tax. For 2024–25, the concessional cap is $30,000. The non-concessional cap is $120,000, but if you’re under 75 and meet the balance test, you can bring forward the next two years and put in up to $360,000 in one go.

Like everything else in retirement planning, shifting from accumulation to retirement phase is personal. It’s a big change, and there’s no single approach that works for everyone. An experienced financial adviser can help you devise a strategy that will meet your income needs and estate planning goals.

Superannuation is more than just retirement savings. It’s an investment in the lifestyle you want after your working years are over. Moving from the accumulation phase to the pension stage isn’t an automatic milestone like a birthday.

It’s a conscious decision, and timing and strategy matter.

Miss the key steps, and you could end up with less income or unnecessary tax.

At First Financial, we offer tailored superannuation advice to help you get the most out of what you’ve worked hard to build – whether you’re still growing your balance or getting ready to use it.

To learn more about the phases of superannuation or to get started on the pathway to wealth today, contact a friendly member of our team.

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