INCOME STREAMS - PENSIONS An allocated pension is a tax-effective income stream in your retirement, which is paid from your supeannuation fund. The minimum pension amount will depend on your superannuation account balance and your age when the pension commences. The maximum draw down is the balance of your superannuation entitlement.
A summary of the minimum pension draw downs is as follows:
| Age |
% of Account Balance |
| 55-64 |
4 |
| 65-74 |
5 |
| 75-84 |
6 |
| 85-94 |
10 |
| 95+ |
14 |
The account balance increases or decreases with earnings and market value movements. Once the capital is exhausted pension payment will cease.
When a member is 60 years of age the pension they receive is tax free.
If a member commences an allocated pension before age 60 the purchase price must be funded with unrestricted non-preserved benefits i.e. the recipient must have been eligible to receive their superannuation benefit as a lump sum. These benefits could arise through being accumulated within the same superannuation fund, or through an ETP rolled over from another superannuation fund.
Any "undeducted" money that went into your super fund (contributions that didn't attract a tax deduction) forms the "deductible amount" of your allocated pension. This is an annual amount, which you can withdraw from the pension tax-free.
A popular strategy is for investors to make large undeducted contributions to their SMSF shortly before retirement to maximise this tax-free amount.
Allocated pensions - Advantages
Allocated pensions are a flexible and tax-effective way to provide income in your retirement.
They are flexible because you can usually:
- Vary your pension payments with only a set minimum to take out;
- Choose monthly, quarterly, six-monthly or annual payments
- Withdraw lump sums;
- Specify how much and to whom benefits are to be paid upon your death
- Choose from a range of investment options.
They are tax-effective because:
- Pension payments to members aged 60 or older are tax free;
- Investment earnings including capital gains added to your allocated pension account
are tax-free
- Pension payments to members under 60 are taxable, but may have a tax-free component
- Lump sum withdrawals are subject to tax at lump sum tax rates
- You may be entitled to a tax rebate.
Allocated pensions – Disadvantages
Allocated pensions have following disadvantages:
- There is no guarantee your pension payments will continue throughout your lifetime
- The investment option you choose may not perform to your expectations
- The government may change the rules about allocated pensions
- You can't split your pension between husband and wife to reduce tax
- An allocated pension is not exempt from the assets test for social security purposes.
What we can do for you to commence allocated pension:
- We review your trust deed to ascertain whether it allows for the payment of benefits as an allocated pension and the member has satisfied a condition of release (e.g. retirement). If your trust deed does not provide for income stream payments, we will arrange for necessary amendment to the trust deed.
- We will arrange for Pay-As-You-Go (PAYG) registration with ATO if required.
- Complete & submit TFN declaration form for each member-receiving pension from Superannuation Fund.
- Submit Withholding declaration form, if the payee is claiming the senior Australian tax offset and/or certain rebates.
- Issue an end of year PAYG payment summary to each member.
- Issue an ETP Payment Summary, if the pension is partly or fully commuted to a lump sum and the lump sum (an eligible termination payment) is taken in cash.
- Issue an ETP Roll Over Statement, if the pension is partly or fully commuted to a lump sum (an eligible termination payment), and the lump sum is rolled-over to another superannuation provider.
- Complete & lodge a Reasonable Benefit Limit Reporting Form.
FREQUENTLY ASKED QUESTIONS:
1. How do I convert my super fund from accumulation to Pension phase?
Your SMSF can be converted into Pension paying fund, provided your trust deed allows for the payment of benefits as an allocated pension or market linked pension and the member has satisfied a condition of release (e.g. retirement). If your trust deed does not provide for income stream payments, an amendment to the deed will be required.
2. How often do allocated pension payments need to be made? .
The Superannuation Industry (Supervision) Regulations 1994 (SISR) requires a pension payment at least annually. However, you are able to draw on your pension to meet your cash flow requirements.
3. What are minimum/maximum limits?
The rules governing allocated pensions only require a payment of a minimum pension. There is no maximum, hence, a member entitled to receipt of an allocated pension may draw their entire benefit
from the fund.
How do i transfer shares into my fund?
You fill out a white standard transfer with you as the seller and the fund as the buyer. The date of the sale appears on the transfer and the new shares will be registered immediately. You will pay capital gains tax on the sale.
How do I transfer a property into my fund?
It must be a commercial property not a residential property. Capital gains tax is payable. You can contribute a maximum of $450,000.
Can I take money out of my fund and keep contributing?
Yes. People over 60 still working can contribute up to $100,000 from a salary and pay no tax on withdrawals or the earnings on the balance in the fund. The fund pays tax on the money you are contributing but the balance is free of tax on withdrawals and on its earnings.
What do I need to do to convert to a payout?
People who want to keep working after 60 will split the fund into taxable and a tax free balances.
The tax free is where you withdraw from.
The taxable is where you contribute to.
You may need a separate bank account in your fund for contributions.
The taxfree part is where you have made after tax contributions, plus pre 83 CGT exempt and other concessional components. This is a bit complicated so ask us.
I am under 60 and want to retire. Can I do it?
Yes but the tax concessions are not as good.
Can I take my pension now and revert to savings in super later?
Yes. You can go back to accumulating in your fund later.
We have our own fund and want to live overseas. Is that OK?
Yes, but you will need to meet specific residency tests for the fund. You may need to change the trustee for the fund. The fund has to managed and controlled in Australia.
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