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Question: I am now eligible to begin a pension within my SMSF. My husband, and only other trustee, will be eligible on 1 August 2018. Receiving the pension income is not a determining factor in what date we should each begin our pensions. Until July1 2017 we were both in TTR phase, but because we didn’t need to draw a pension we reverted to Accumulation. Both of us are now 60 years of age.

  1. Is there any advantage (eg tax) for me to begin a pension now or would it make no difference if I waited until we are both eligible. I turned 60 in January.
  2. We will both reach our Transfer Balance Cap (TBC). At what date is this determined? If I begin a pension today - is it the value of my Super today (5 April) or is it taken from end of financial year tax records i.e June 30 2017. Because of the dip in the value of equities, and especially as we own a large percentage of Australian banks which have dipped even more, the date to determine the TBC will make a difference.

Answer (By Paul Rickard):

  1. Yes, there is an advantage in starting a pension now. The tax rate on the investment earnings of those assets supporting the payment of the pension will fall from 15% to 0%. Because your husband’s “assets” will still be taxed at 15%, your SMSF tax rate will fall below 15% (an actuary will calculate the actual rate). The disadvantage, of course, is that you will be required to withdraw from super at least the minimum amount (4% of the account balance).
  2. The Transfer Balance Cap (or your first credit towards it) will start on the day you commence the pension. In your case (example), it will be the market value as at 5 April.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.

 

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