Reader’s question: I’m 56 and have a transition to retirement pension with an industry super fund. I’d like to close this pension and start a new one with additional super funds.
When is the best time of year to do this and what procedures need to be followed?
Closing and reopening a super pension with additional funds from an accumulation account is considered a super transfer, says Glenn Treacy, manager of financial planning at AustralianSuper.
Carrying out such a transfer, which planners describe as rebooting, involves completing instructions set down in special forms provided by the fund trustee.
Investments must be sold
As money from the existing pension and super savings accounts must be transferred and combined to establish the new pension, investments will need to be sold.
Depending on their value, this may result in your existing pension balance being less than when you started. That’s because the investments supporting your existing pension haven’t had much time to perform to counterbalance any pension payments you have taken over the last year as you would have only started from age 55. This aspect can be discussed with an industry fund financial planner.
Or you may want the additional funds to come from a non-super source via after-tax contributions.
A matter of timing
Here, timing can help. If you want to contribute more than the non-concessional cap of $150,000 per year, doing so before June 30 could be favourable. For someone under 60 and still paying tax on super pension payments, adding after-tax contributions may be tax-effective as it boosts the part of your pension that is not taxable.
The taxable proportion of a super pension for the under-60s (from salary sacrifice and employer contributions as well as internal fund performance) is taxed at your personal tax rate less a 15 per cent rebate. There is no tax on the tax-free proportion sourced from after-tax contributions.
Save on tax
Regarding the attractions of combining an existing pension and additional super to start a new pension, having more money in a pension account will save you the 15 per cent earnings tax that super in accumulation accounts must pay.
Having a larger pension balance will increase the minimum income stream that must be taken, although you also need to remain aware that the maximum withdrawal from a transition to retirement pension is 10 per cent of the account balance.
Depending on your income or cash-flow needs, this may be a factor also to discuss with a planner.