Most of us choose the third option; we take our super benefits as a retirement income stream (an account-based pension), and also take a small proportion of our super benefits as a lump sum (once or every so often).
Importantly, transferring your super benefits from accumulation phase to retirement phase by commencing an account-based pension, can be a tax-effective way to fund your retirement lifestyle:
However, it’s also important to note that there is a limit to the abovementioned tax concessions, which came into effect from 1 July 2017. The limit is referred to as the transfer balance cap (TBC).
The TBC was introduced to limit the amount of super benefits that can be taxed concessionally, so these funds are used primarily for retirement as opposed to, for example, intergenerational wealth transfer.
How does the TBC achieve this?
The TBC limits the amount of super benefits that can be transferred to retirement phase (e.g. an account-based pension). This, in turn, limits the amount of super assets that are exempt from tax.
Please note: There is no limit on the amount of super benefits that can be held in accumulation phase, which has its own tax concessions.