Commencing income streams

My SMSF consists of my wife and myself with a majority of funds in my wife’s name (as I have preserved benefits with PSS – which appears to be the best place to leave until really necessary to withdraw/CPI indexed pension).

My wife is 58 and permanently retired whilst I am 57. I am currently retired but may return to employment in a few months’ time. Should I start a simple account based pension or a transition to retirement stream – issues such as lump sum withdrawals seem to indicate the pension approach is best at this stage. My wife’s accumulation account will be converted to a simple pension.
The SMSF has been audited for the 2009 financial year. If I and my wife now request the SMSF to commence income streams can the date of commencement still be 1 July 2009 so that I can take advantage of tax free status for the full financial year (I only require income payments annually in June 2010).

As the fund has been audited and the only investments are shares and cash, and assuming the pension can commence on 1 July 2009, do I still need an actuarial statement. Can specific share investments be allocated to each member?

 

Hi John,

I hope retirement is working well for you.

I don't think you have a choice...You met a Condition of Release when you retired over age 55 and never planning to work again, at that time your superannuation funds would have been classified as unrestricted non-preserved which means you can take lump sum withdrawals at any time (regardless of your working status).

I'm sure a good accountant could legitimise this quite easily. Mr Nick our resident SMSF expert may shed some more light?

I think the actuarial statements are only for Defined Benefit plans...Nick can you verify?

If you really wanted to you could allocate specific assets to each member, if your both in pension phase is it going to make a difference? I do believe the term is segration of assets (I know Nick will verify for me ).

Unfortunately, there are many accountants who will advice client's to set up SMSFs to get annual auditing fees and don't give advice on the assets or the actually running of the SMSF, they might not know what unrestricted non-preserved means either...

A Transition to Retirement (TtR) also known as a Non-Commuteable Account/Allocated Pension (NCAP) means that you can move to pension phase while you are still working and before you meet a Condition of Release. While a TTR member is under age 65 they can draw a maximum of 10% of their superannuation balance as an income stream each financial year. When a TTR member retires from work under age 65, usually the funds become Unrestricted Nonpreserved which means they can access lump sums and a maximum of 100%.

Cheers,

Dan

PS This is general information before making an investment decision speak to your FPA registered Financial Planner.

 

Update

Thanks for the feedback Dan. I’ve been able to undertake further research and think I have obtained the answers I require.
However I have one additional question. I have read that it is possible to reset pensions instead of ending up with multiple pension accounts. This process allows a roll-back to the original the pension, add in the additional accumulation balance, and then commence a new pension. However I cannot find any reference on what documentation is required to do this.
In regard to my previous questions:
• A pension can be paid in arrears during the financial year. The pension commencement date is the first day of the period to which the first pension payment relates – that is if I pay 6 month in arrears with the first pension payment on 31 December 2009 then the commencement day would be 1 July 2009.
• My understanding is that an actuarial certificate is required unless the investments are segregated (if there are accumulation balances and pensions in place).

 

Hi John,

You should speak to your SMSF specialist/adviser for all the details.

Cheers,

Dan

PS This is general advice. Speak to your SMSF specialist before making a decision.

 

Where there are member accounts partly used to fund exempt pensions, it is necessary to identify the assets and their respective income/gains.

Segregating those assets is merely an accounting exercise.

When you are under 60, the income stream will usually not be exempt but can be a messy actuarial exercise if you do not segregate immediately before starting the income stream.

Starting an income stream on July 1 is convenient because you do not have to produce an intermediate set of financial statements.

You only need at least one payment per year, so deferring towards years end will allow concessionally taxed income for that account.

If you leave it too late, technical hiccups can mean you lose your complying status.

e.g. If 30th June falls on a Saturday then banks may not record transactions as processed until the Monday !!

Cheers,

Rob