Since the introduction of the Government’s “simple super” regime on 1 July this year, it is no longer a mandatory requirement for retirees to convert their superannuation assets to a pension arrangement. This means, in effect, that if you don’t need the regular income a pension provides to pay the bills, you can leave your cash in accumulation phase indefinitely.

This change has largely been driven by the Government’s recognition that many people wish to keep working, and contributing to their pension pot, past retirement age. The additional benefit for Government is that people who do so may be less reliant on social security benefits when they do eventually stop work.

Taxation payments, however, will be higher where an individual leaves their assets in a super fund. The main difference between the accumulation phase and the pension phase relates to the tax treatment of the earnings within the fund. In the accumulation phase, earnings on a super funds are taxed at up to 15 per cent.

Once a fund converts to paying a pension, there is no tax payable on the earnings. If a member had an account balance of $500,000 and generated 8 per cent ($40,000) assessable earnings, and assuming half of this is income, and the other half realised capital gains, then the tax payable would be around $5,000. If the account had been converted to the pension phase, then the tax would have been zero.

So any investment earnings within a pension funds are tax free. Additionally, if you are aged over 60, any pension drawdowns are also tax free.

But once a pension is commenced, it is no longer possible to add extra contributions, so this will ultimately be the make or break decision for most people at retirement age