Question 1

Hi Craig. I am 76 and have been retired for two years, living off my bank savings. My super of $1.8 million I have left in an accumulation account in my industry fund. Such monies can earn me just over $100,000 per year if shares are good. Given my age, if I put this amount into a pension mode, it pays me the mandatory 6 per cent, which is my annual earnings. So is it not a sound investment to allow it to accumulate while I spend down my savings of $150,000 because as a single person 6 per cent is too much money anyway? Could I recontribute excess back into the accumulation phase again?

You are correct in that if you convert your super to a pension then you are required to draw down a minimum each year based on your account balance and age. See the table below.

As you are 76 you are required to draw down 6 per cent of the account balance (based on the starting balance and then balance as at July 1 each year).

If this generates too much income for you, you cannot contribute the funds back into super as you are over 75.

The big advantage in converting the funds from super accumulation to a pension is that earnings within a pension are tax free. Whereas the super accumulation earnings are taxed at 15 per cent.

One strategy you could look at is converting most of your super to a pension and draw the minimum based on that amount. Leaving the balance in super accumulation.

Minimum payment from an account-based pension (based on your account balance)

Question 2

I work part-time and my husband is on a part aged pension due to my income. We plan to sell our house but not buy another one for three to four months as we will be travelling. We expect to realise around $500,000 from the house sale and my superannuation balance is $480,000 (I am 63). I will probably take my long service at half pay whilst we are travelling. I know that one’s principal home does not count as an asset, but what about the interim period between selling and buying another house? Would that put our assets above the threshold for my husband to get any aged pension? What is the best way to offset this temporary increase in asset? (Whilst we are not too concerned about a temporary total loss of the pension, we would hate to be cut off completely. The application process is a killer!)

Yes, many people find the age pension application process a bit of a pain. There are now a few companies that offer to fill the forms in for you, at a cost though.

Centrelink has always had concessions available for those moving home or selling and building a new home.

In good news for you the concessions were made more generous as at January 1, 2023.

If you sell and intend to buy/build a new home within 24 months then the funds earmarked are not counted under the assets test.

For example, if you sold your home for $800,000 and intend to buy a new one for $600,000, then the $600,000 is not counted.

In addition, only the lower deeming rate of 0.25 per cent per annum applies under the income test for these funds.

The aim of these changes is to reduce the impact of selling and buying a new home on Centrelink entitlements.

Your super does not get assessed until you reach age pension age (67). However, it is important you update Centrelink with your financial position once you have sold your home and started taking long service leave at half pay so your husband is then paid the correct entitlement.

Question 3

It’s easy to find out what rates for savings or term deposits are offered by banks and others, but all the rates quoted are for personal investments. It is difficult to find what they offer if it is going to be in the name of a self-managed super fund. Any thoughts?

Many financial institutions now offer the same rates whether for a personal investor, a business or in the name of a SMSF.

Unfortunately, you must confirm that with the institution or read the fine print.

Additionally, Finder provides further SMSF information and rates.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

– TND