Question. I am 54, recovering from a work injury and still medically unfit to work. I volunteered for redundancy as I think it will take time for me to return to work.
Is there anything I can do with my superannuation, as I worry that while I am recuperating the fees will eat up my funds.
Answer. A good superannuation fund should do at least 6 per cent a year, which should be way more than the fees you are paying. I suggest you take advice about what is the best asset mix inside super to maximise the returns, as you may have at least 35 years living ahead of you.
Question. My wife has a reversionary lifetime pension through our SMSF and is allowed to withdraw a set amount with annual indexation each year. We have read in your column that tax-free lump sums can be taken from super funds. Can she also take a few thousand as a commutation each year, as she is asset rich but income poor. We know that if she commutes some it will lessen our Centrelink pensions by 25 cents in the dollar each, so she would still be better off by 75 cents in the dollar.
Answer. There are specific rules surrounding what can and can’t be done with a lifetime pension. A complying lifetime pension can only be fully or partially commuted under specific circumstances. To provide supplementary income support for a member is not an acceptable purpose.
The two main reasons for establishing a lifetime pension were to minimise the effect of the Reasonable Benefit Limit (RBL) regime and maximise Centrelink benefits. The RBL regime is no longer applicable but the benefits obtained from Centrelink may well be a barrier. Depending on when the pension was started, the pension may enjoy a 100 per cent assets test exemption. Any change to the current pension structure may affect the exemption that is applied.
If you were to contemplate a commutation of a lifetime pension, you should seek advice from a financial adviser who is an expert in this complex area.
Question. My wife is 61 and we own our home outright. We are both retired on a DVA couples part pension, plus a TPI pension. Assuming the new rules come into effect after January 1, 2015, will my wife’s super balance count as an asset when our pension is assessed? Should we start an account based pension before January 1, 2015 to take advantage of the grandfathering rules?
Answer. Take advice. Money in superannuation in accumulation mode is not assessed by Centrelink until the investor reaches pensionable age, but if you move the account to pension mode it will be assessed immediately. Your adviser will be able to do the sums for you, but I would expect you’d be better off to leave things as they are for the time being.
Question. I am 64, single with no dependants. I have nominated extended family members as beneficiaries in my will. What is the tax rate on any accumulated superannuation left in my estate?
Answer. The taxable component of your superannuation will be taxed at 17 per cent if left to a non-dependent, which appears to be the status of the beneficiaries you mention. You can reduce the taxable component by withdrawing funds from your superannuation tax free and then re-contributing them as a non-concessional contribution. Take advice as there are heavy penalties for getting it wrong. I suggest you also discuss anti-detriment payments with your adviser because they are an issue that could have a bearing on which is the best strategy for you.
Question. I am 79, my wife is 76 and we receive a part pension of $379 a week. We have $510,000 in SMSF, draw the maximum of $65,000 a year and hold $65,000 outside the fund. If we run out of money outside the fund in a few years, can we draw more than our annual income stream without affecting our age pension?
Answer. Money withdrawn from super is not counted as income – in fact the reduction in your balance will reduce your assets for Centrelink purposes, and may even cause an increase in pension. Just keep in mind that if your super fund is in pension phase, a deductible amount will be used when calculating your income under the Incomes Test. Make sure you take advice because the rules are changing extensively on January 1, 2015.
Question. I am 55 and am drawing a Transition to Retirement pension. I have a small mortgage on a rental property valued at $525,000, and am thinking of selling the property and transferring the money into super. Is this a good idea, or should I continue with my current arrangements?
Answer. Whether it is a good idea turns on the potential of the property. If you think you can achieve higher returns in super, by all means sell it. But talk to your accountant before signing any contracts to find out what capital gains tax, if any, will be payable on sale. You have plenty of time to contribute to super so there is no urgency. The other option is to use part of your TTR pension to handle the mortgage payments, if you decide to keep the investment property.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email: firstname.lastname@example.org.