MOVING YOUR SELF MANAGED SUPERFUND (SMSF) INTO PENSION PHASE

Moving self-managed superannuation benefits to pension stage is a common way to invest in retirement income. When you have a self-been able superannuation account (SMSF), there are many things you should think about whenever starting a pension.

What is an account-based pension?

An account-based pension is similar to a personal retirement living income account operating in a superannuation fund. You receive regular income obligations, while at the same time your bank account may earn investment income. Any investment income gained in pension period is taxed free.

Your self-managed superannuation trust deed must permit the payment of the account-based pension.

It is an excellent time for an overall review of your trust deed, and an update, if appropriate. This will likely generally require a legal professional.

Think about your fund’s investment strategy

The investment strategy that matched you in deposition phase is probably not appropriate in pension period.

Studies also show(1) that the impact of negative profits can be higher when attracting down on your capital, in comparison to when in accumulation period (where you will not be attracting down and may be increasing your capital), which means that your investment strategy should consider this additional risk. Your adviser will be able to assist you in determining an appropriate investment technique for your self-managed superannuation.

Make the minimum payments

When jogging an account-based pension, one of the key requirements is to make sure you sketch at least the bare minimum payment amount each financial year. That is an importantstandard in maintaining the tax-free status of your fund’s earnings in pension stage.

If you do not meet the minimum payment amount requirements, then the complete balance of the bank account established pension will be treated as though it were in deposition phase for the whole year. This will likely result in assessable investment profits being taxed at 15%, somewhat than being received tax-free. It is not enough for your finance to simply ‘account’ for the bare minimum payment through the journal entry; cash must be paid from your profile and leave your self-managed superannuation.

Keep your records safe

SMSF trustees are essential for legal reasons to keep records of trades of the fund, including those associated with pension obligations. These data will also assist your accountant in substantiating your fund’s duty position. Details relating to pension payments must be placed for at the least five years, but note that some information (e.g. minutes of trustee meetings) must be retained for ten years.

Estate Planning

If you are receiving a pension from your fund, the rules of your self-managed superannuation may allow you to nominate one of your dependents (usually your spouse) to continue to get the pension after your death, generally referenced as a reversionary pension. Additionally, you could be able to nominate one or more dependents to get the lump sum payment or a pension after your loss of life, or your house to receive a lump sum payment.