An Islamic Account-based pension is an investment account which gives you the ability to choose from a range of halal investments which provides the flexibility to draw the level of income you wish, subject to the minimum annual withdrawal amounts set by the Government.
The amount of Age pension you are entitled to is determined by applying an income test and an assets test. The test that results in the lowest Age pension being paid to you is the one that Centrelink will apply, this may change over time. Under the assets test the whole balance of your account-based pension will be assessed. If you started your account-based pension before 1 January 2015 then only part of your pension income will be assessed under the income test. If you commenced your pension on or after 1 January 2015 then the whole balance will be deemed for income test purposes.
If you die, any money remaining in your account will be paid to your beneficiaries or your estate. If you have nominated a reversionary beneficiary then that person will continue to receive your pension payments until the account runs out and will be able to manage the account just as you could before your death. If you nominate a child as your reversionary beneficiary they will only be able to receive pension payments until they reach age 25, and then any remaining balance will be paid to them as a lump sum. If your beneficiary is a spouse or dependent they may choose to receive your death benefit payment as a pension or a lump sum. Non-dependent beneficiaries will only be able to receive super death benefits as a lump sum.
Income payments can be made monthly, quarterly, half-yearly or annually and continue until the account balance is exhausted.
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Benefits of Islamic Account-based pensions
Your investments are invested in a Islamic manner
You don’t pay tax on investment earnings
You won’t pay tax on pension payments from age 60
If you are aged 55-59, the taxable portion of your account-based pension will be taxed at your marginal tax rate less a 15% tax offset
You can access your money at any time i.e. you can withdraw some or all of the money as a lump sum
Your balance will increase as investment earnings are added to your account
You can vary the payments (subject to minimum and maximum restrictions)
There may be money left over for your estate
Case study: Nadia takes out an Islamic Superannuation account-based pension
Nadia is 61 and single. She invests $150,000 in an account-based pension. Based on her age, she must take out a minimum of 4% of her investment, which is $6,000, during the financial year. Nadia decides to draw down $500 every month to supplement her income from her part-time job.