29 Oct 2011 | Superannuation
There are many strategies that can be used to increase your retirement investments. One of them is to start a Transition To Retirement pension from a super fund and salary sacrifice extra super contributions.
Q. I work full time and will be 65 next August. My super company wants me to put most of my salary into super before I hit 65 and then draw off that for living expenses. Is this a good idea or would I be better off starting a self managed fund?
A. Starting a TTR pension when you are 60 can make a great deal of sense. This is because as the pension you receive is tax free you will be able to sacrifice more of your salary as extra super contributions, and no tax is payable on the income earned to fund the pension. Doing it this financial year is also important as the maximum super contribution level is $50,000 a year, which is set to drop to $25,000 from 1 July 2012.
Whether you start a self managed super fund should not be influenced solely by starting a TTR pension. For this decision to be cost effective, taking into consideration the annual tax and accounting costs, you would need to have at least $300,000 in superannuation. An SMSF is however a major benefit in pension phase due to the lack of several layers of bureaucracy associated with externally managed super funds.
Q. My parents have an SMSF that has a term deposit of $375,000. This earns approx 6% in interest which they draw down as a pension. They also receive a pension from Centrelink who have advised that we must now tell them of any income earned in the SMSF. Is this correct?
A. It does not make sense that Centrelink is interested in the income earned by the SMSF. When a person or couple is of age pension age the income counted from a super fund is either the net pension received, or the income your parents are counted as earning from the SMSF under the deeming rules.
Centrelink does however need to be advised on an annual basis of the value of your parents SMSF so this can be counted as an asset for the assets test, and if applicable the deeming rules applied to this value. Where a pension is paid by an SMSF Centrelink uses the value of the pension account at that time it is started to calculate the purchase price. This is deducted from the pension received to arrive at the net pension counted under the income test.
Q. My husband is 73; I am 61 and work full time. I have an SMSF consisting of $350,000 in a term deposit, $70,000 in a cash management account and somewhere between $180,000 and $200,000 in the share market. My husband has $10,000 in super and receives a part pension of $65 per fortnight. I am considering retiring in February 2012 and want to know if my husband would qualify for the full aged pension or would Centrelink take my superannuation into account.
A. From what you have described your husband’s age pension entitlement is currently affected by your full time employment earnings rather than the assets test. By you ceasing work next year your husband’s pension could be affected if you commenced an account based pension from your super fund. Superannuation is not counted as an asset unless someone reaches age pension age. Once a person starts receiving a pension from a super fund under age pension age its value is then counted as an asset by Centrelink.
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