How to refresh a pension

Hi Tony,

You recently answered my question about how to ‘refresh’ a pension. I am still unclear if I should;

a) Fully commute pension to accumulation account on 1st July (to combine with pre-existing accumulation amount), and start a new pension with all (or most) on 1st July. This has the disadvantage that the existing pension is still active on 1st July so the minimum pension payment for the new year must be made first before commuting. The payment will be small (1/365 of 4% minimum), but a nuisance.

b) Commute the pension back to accumulation account on 30th June, and start a new pension with all (or most) on 1st July. The minimum pension payment (say 4%) would already have been taken care of. The disadvantage is that all funds are in accumulation mode for 1 day (30th June) which slightly increases the average taxable component calculated in the actuarial certificate.

Which option is usual industry practice, and what do you recommend?

A: There is no specific industry practice in relation to commuting one pension and commencing another.


The simplest approach is as follows;



  • close the existing pension after the close of business on 30 June (this means you were paying a pension for the whole of that financial year) and then,

  • commence the new pension on 1 July


This approach means there is no need to pro-rata the amount of income paid.



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