Retirement Income Streams and Pensions
Account-based pensions
An account-based pension (ABP) is the most common retirement income stream. It must satisfy the retirement phase rules: minimum annual payments (based on age and account balance), no maximum, and commutation at any time. Earnings in retirement phase are tax-exempt up to the transfer balance cap (TBC) (indexed). Amounts above the cap must remain in accumulation or be removed.
Other products
Candidates should recognise annuities (fixed-term or lifetime), defined benefit pensions, and the newer retirement income covenant requiring trustees to offer a retirement income strategy. The minimum drawdown percentages rise with age; failure to draw the minimum can cause the pension to lose tax exemption.
Traps
Examiners test the TBC (a lifetime limit on amounts transferred to retirement phase, not a cap on the balance itself), the difference between minimum and maximum payments, and whether a pension can be commuted. Confusion between the TBC and the total super balance cap is common.
Rule of thumb
Retirement phase = tax-exempt earnings + minimum drawdown + TBC headroom. If a member exceeds the TBC, the excess is taxed on earnings and must be corrected.