Retirement realignment

The strategy To start a pension from my super fund when I retire.
By · 14 Oct 2009
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14 Oct 2009
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Upsell Banner
The strategy To start a pension from my super fund when I retire.

How do I do that? Don't leave it to the last minute, is the first advice from Partners Superannuation Services director Martin Murden. While most super funds now have a pension option, you need to ensure it is the right one for you rather than simply rolling over without question.

It may be that switching to a pension will incur a big fee hike or other changes that could mean you're better off switching to a different provider.

If you have a self-managed super fund, Murden says you should check its trust deed to ensure it allows for payment of all types of income streams currently legislated.

Some older trust deeds may need amendments before you commence your pension.

Murden says you also need to ensure the fund provides your partner with the choice of a reversionary pension or lump sum if you die.

What else? You need to ensure you've made all your contributions before you switch to pension phase as you cannot contribute to a pension fund. If you're an employee, you'll need to check your employer's final payment has been made. If you're making a tax-deductible contribution yourself, you'll need to complete the Tax Office's "deduction for personal super contributions" form, or you could find you're ineligible to claim the deduction.

Murden says if you have more than one super fund, it can be a good idea to amalgamate them but this is best done after all your contributions have gone in and the fund has been notified of any personal deductible contributions. He says the newly amalgamated fund should also be made aware of last-minute personal deductions.

Is there much paperwork involved? If you're in a public offer fund, the provider will send out the relevant forms. If you have a self-managed fund, Murden says you'll need to organise your own documentation including a pension request, trustee minutes, pension conditions and member information. It may be included in the forms but you should also give thought to who will get your pension if you die  bearing in mind that it is more tax-effective for dependents to receive super death benefits.

You'll also need to decide how much income you want from your pension (a budget is a good starting point) and whether you want to receive a regular income, a one-off annual payment, or ad hoc payments as needed  making sure you bear in mind any legal minimum pension drawdowns.

Murden says you should have arrangements in place to ensure any minimum income is drawn down before the end of each financial year.

Do I need to change my investment strategy? Retiring is a big change so it would certainly make sense to review the strategy. It's even more of an issue for those with self-managed funds as you will need to consider what investments you'll need to provide the pension income. You may need to increase the fund's cash holdings. Murden suggests it may make sense to take dividends and distributions as cash rather than reinvesting.

He says putting a proportion of the fund's assets into fixed interest and/or cash can also provide a buffer if assets fall in value, so you don't have to sell in a downturn to fund your pension payments.

Can I pay a transition-to-retirement pension from my self-managed fund? If the fund's trust deed provides for it, you certainly can. If you have both a TTR pension and an accumulation account, he says "recasting" or merging the two and starting a second pension can have tax advantages  though you'll need to investigate this thoroughly as the benefits will depend on the proportion of tax-exempt money in each account. He says merging is most beneficial for those whose initial pension doesn't have a tax-exempt component. If your initial fund does have a tax-exempt component, merging could reduce the amount that is tax-exempt on your death  leaving some beneficiaries (such as adult children) with a bigger tax bill.

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