Since the 9 May 2006 Federal budget, superannuation has become the most tax effective vehicle for wealth accumulation, asset protection & estate planning. Superannuation is becoming the first or second largest asset for most individuals.

This ATMA professional development group presents a great opportunity for advisors to learn how interesting strategies can be structured so that they can assist their clients to maximize their retirement benefits.


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Strategies covered

• How to get more money into super
• Why paying off principal of your own home loan could be the worst decision you would ever make
• How a 50 year old can pay only 4% interest on own home loan
• Instalment warrants Vs joint venture Unit trust arrangement
• Preservation and conditions of release requirements
• Re-contribution strategies - are they still alive
• Splitting super with spouse
• Transition to retirement pensions
• How 75 + year olds can contribute into super
• Other interesting and complex strategies

Manoj Abichandani
Technical Director www.trustdeed.com.au

SMSF Specialist Advisor

Pensions from Self Managed Super Funds


 

ximum amount for AB Pensions under the SIS Act and the SIS Regulations. However, in case of transition to retirement pensions, the maximum a member can withdraw is 10% of the pension balance on 30th June of the preceding year or in the first year, 10% of the pension balance at the commencement of the pension.
 
ABP allows for full access to capital, the member is able to draw down funds at any time by the commutation of all or part of their pension account balance in the fund.
 

Account Based Pension  Payment Conditions
 
Account Based Pension is a flexible and regular income stream paid out to a member by a Superannuation fund from the member's pension account balance.
 
Investment earnings, such as rent, interest, dividends etc are added to the account and expenses are deducted from the account. Trustee cannot charge a fee for providing you a pension, however subject to your trust deed may be entitled to out of pocket expense. The member's account may go up initially but may reduce over time, when member gets older and if the minimum withdrawal percentage is more than investment rate of return.
 
The rate of reduction will be depend on:

• The net investment earnings
• The amount of pension paid
• The member's age, and,
• Any commutations of pensions to lump sum benefits.

 
Unlike lifetime income streams (pensions or annuities) there is no guarantee that the pension will be paid for full life of the member. The member retains the benefit of higher earnings and/or capital growth but also carries the risk of lower earnings and or capital losses and how long the underlying capital in their account balance in their Superannuation fund will last.
 
Most people consider the ability to access capital, investment control of the fund and transfer any remaining balance to their dependants or estate on death more than compensates for the risk that they may run out of capital before death.

 
 

Definitions
 

 
From 1st July 2007 when any trigger event happens (like member turning 60 years etc) the trustees must crystallize any pension interest of a member in a SMSF; any Pre 1983 component is added to un deducted component and together become Tax Free components (along with some other rare components). These rules are known as proportioning rule.
 
 
Proportioning rule
 
When a super benefit is paid from a superannuation interest, the benefit is paid in the proportions of tax-free and taxable components, which make up the value of the superannuation interest just before the benefit is paid (purchase price of pension). For example, if the member's superannuation interest is made up of a 30% taxable component and a 70% tax free component, the super benefit paid (pension paid to the member) must be made up of a 30% taxable component and a 70% tax free component.
 
Any income growth (such as interest, rental, dividend income etc) in superannuation interest is also allocated in the same proportions of tax free and taxable components, which make up the value of the superannuation interest before any benefit is paid  percentage is fixed at the time of commencement of pension. For example, if the fund increases (or decreases) in value by say $100,000 and if 70% is tax free component, the super interest will increase (or decrease) by $70,000 as tax free component at the end of the year.
 
These proportioning rules should not be confused with the tax situation of the pensioner i.e. any superannuation interest paid to a pensioner over the age of 60 years old, is tax free and is NOT to be included in their income tax returns. But if the pensioner is under 60 years old, taxable component is included in the pensioner's income tax return and trustees must issue a PAYG Payment summary and withhold appropriate withholding tax.
 



New Contributions into your SMSF whilst being on TRIP
 

account will be paid by the trustee consistently with the trust deed and or to your legal personal representative.
 
If the pension is being paid to a reversionary beneficiary and if that person dies, then the trustee must pay the account balance to the person nominated in the death benefit notice of the reversionary beneficiary.
 
The account based pension will end, when the money in the pension account finishes or when the pensioner dies or when the reversionary beneficiary dies.
 
A lump sum death benefit payment is tax free if paid to a person who is a "tax dependant". If a lump sum death benefit is paid to a "non tax dependant" from a "taxable" component, the taxable component of the benefit will be taxed at a maximum tax rate of 15%, plus the Medicare levy. Any "tax free" component is paid to a non tax dependant tax free.

 



Who is a tax dependant?

A tax dependant is:

• a spouse or defacto spouse
• a former spouse or de facto spouse
• a child of the deceased under 18 years of age
• any person who relied on the deceased for financial maintenance at the time of their death, or
• any person who lived with the deceased in a close personal relationship where one or both of them provided financial and domestic support and personal care.

 
 

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