With the beginning of a new year many people are assessing their priorities and considering whether to continue working or not, and if they can indeed afford to retire.
Martin Murden of Partners Superannuation Services has the following useful advice to consider before starting a pension.
Once you finish work, you may rely on your superannuation to provide for you financially but starting a pension correctly is vital to ensure you make the money you have go as far as possible. There are tax breaks of which you can take advantage.
Here is what you need to consider before starting your pension.
Review the fund’s trust deed or review your current fund’s pension options
For self managed superannuants, trust deeds need to be reviewed to ensure they allow for payment of all income streams under current legislation as well as death benefits such as lump sum or revisionary pensions (when you die your pension can revert to your spouse/dependents). Superannuants in public offer funds should review their current provider to ensure their fund suits their pension requirements. Be mindful of restrictions.
Ensure all your superannuation contributions are in the fund prior to starting your pension
If you’re self employed or running your own business, make the necessary payments or if you’re an employee, get your employer’s confirmation that the final payment has been made.
If you make a last-minute personal contribution and want a tax deduction, you will need to complete a ‘deduction for personal super contributions’ from (available for download form ATO website.
Given the 1 July 2007 superannuation changes, potential retirees are now required to complete this form. “Anyone not completing this form could miss out on a substantial tax deduction. For example, if you put $50,000 in your fund and you are in the 40% tax bracket, this could cost you 20,000 in tax.
If you are a member of more than one fund, consider amalgamating your super fund accounts
This should occur after the final contributions have gone into the fund. The fund will then be closed and the personal contribution declaration made. You will then need to ask the SMSF trustee or fund administrator to transfer your entitlements from the one fund into the other.
This amalgamated fund must also be alerted of last minute personal contributions.
Establish pension documentation for SMSF or request forms from provider
Superannuants in SMSFs will need be ensure pension documentation includes an application to the trustees requesting a pension, trustee minutes, pension conditions and member information. Those in public offer funds will need to contact their provider and initiate the pension process. Generally providers will send out the relevant forms.
Determine how much you need from your pension and prepare a budget
To prepare a budget, you need to factor in your daily living expenses and what plans you have for retirement (travel, new hobbies and interests as well as purchases to support these hobbies such as a new car and caravan.)
Ensure minimum or targeted pension is drawn by 30 June or the end of the relevant financial year and review payment procedures
Those in pension income streams with minimum or targeted pension amounts should ensure that these amounts are drawn by end of the financial year. You can either make periodic, ad hoc of annual withdrawals to satisfy this requirement.
Review what investments will be required to provide the pension
Remember that instead of making contributions, you are now withdrawing money. This may require changes to investment arrangements within the fund. This may mean altering the fund’s investments to include a greater amount in cash and perhaps altering reinvestment procedures such as taking dividends and distributions in cash rather than having them reinvested.
If I have a TRIS and an accumulation account, consider recasting
For those who have a transition to retirement income stream (TRIS) but continue to make contributions to their super fund, merging or “recasting” these two accounts will increase what is in the pension account - meaning more money will be tax exempt.
It is particularly beneficial to those whose initial pension does NOT have a tax exempt component but for those whose initial pension HAS a tax exempt component it could reduce the amount that is tax exempt on death, leaving beneficiaries with a increased tax bill.
For more information, visit Partners Superannuation Services.
This information is provided by Martin Murden of Partners Superannuation Services Pty Ltd, an Australian Financial Services Licensee, Licence No. 234665. YourLifeChoices does not offer financial planning advice and would urge individuals to seek the advice of an independent financial advisor.
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