Starting multiple pensions, ceasing a TRIS

Question. I am keen to create a separate pension account within my SMSF from new funds contributed in June as non-deducted, and draw down my old pension which is mainly deducted. I do not run separate bank accounts for pension and accumulation but use an actuary. I understand that I need to empty out the accumulation account so it has a nil balance, and create the new pension as soon as I make the contribution, so hopefully the new pension is all from non-deducted funds.

Do the calculations for the accumulation account need to be done to the date I do this, so the account is effectively emptied on that date? What are the administrative problems of running two pension accounts? My accountant has suggested that doing the segregated accounts for pensions is probably not practical, do you agree?

Answer. From your question, it is my understanding that at the beginning of the 2017 financial year you had a small amount in an accumulation account in your SMSF, and then at some time during June, you have made a non-concessional/non-deducted super contribution from which you want to commence a pension from.

You could have commenced a new account-based pension on June 1, 2017, which would result in there not being a balance in an accumulation account when you make the non-concessional contribution. Because the new account-based pension would have commenced in June, no minimum payment would need to have been taken by you for the 2017 financial year.

After the non-concessional contribution was made in June you would then need to commence another account-based pension immediately from this contribution. Again, you would not need to have taken a minimum pension payment.

Your accountant will need to calculate what the balance of your accumulation account was at June 1, 2017, to accurately quantify the balance of your accumulation account at that time. Rather than having three pension accounts operating in your SMSF, you would commute the two account-based pensions made up mainly of taxable superannuation in July 2017, and then commence a new account-based pension from the combined total of these two pension accounts.

I do not foresee any major administration problems with having two pension accounts in your SMSF.

I agree with your accountant. I do not believe segregating the assets would provide you with any great benefit if your fund is totally in pension phase. The only real benefit I could see of you using the segregation method, provided your total superannuation balance is under the $1.6 million limit, is if you hold assets that are likely to make large capital gains. That is a benefit if you want them to be segregated to the pension account with the high tax-free component. Before taking any action, you should seek advice from your SMSF's accountant.

Question. Last year I began a transition to retirement income stream (TRIS) from my super fund. During the year, I decided to draw down more than the minimum allowable, and now with the rule changes, I have decided to stop the TRIS. These decisions were made by me and now my accountant wants to charge me to produce paperwork from me to my SMSF requesting what I want. This is a roundabout process and not cheap. Is there a requirement that certain forms be used or can I just write a letter to my SMSF expressing what I want to happen?

Answer. Your accountant is right about there needing to be documentation prepared to evidence what you have done, but it is not necessary for you to pay high fees to prepare them. What you will need to do is write a letter from you as the member to the trustee of your SMSF stating what you want to happen with the TRIS pension payments and you ceasing the TRIS.

You should also prepare a resolution signed by all trustees or directors of the trustee company. This should acknowledge receipt of your letter and the requests you are making regarding your TRIS pension, resolving to prepare all documentation and administration required to meet your request.

In addition, the trustees or directors would need to write a letter to you acknowledging receipt of your request and confirming they will be taking all actions to meet your requests with regards to your TRIS pension.

Due to exceeding the maximum pension payment limits on your TRIS, you should speak to your accountant about the possibility of ceasing your original TRIS part way through the year before you exceeded the maximum pension payments, and then commenced a new TRIS.

It is planned to include in the SMSF section of the InvestSMART website word documents that can be downloaded by members related to producing the documentation needed for many routine actions taken by trustees of SMSFs.

Question. My husband and I are over 75 and both have more than $1.6 million in our SMSF so some of our balances must go back into the accumulation fund. As I understand, we will not be allowed to separate our assets and they must instead be aggregated.

We hold shares that are showing both a large loss and large gains, which go back many years. If we choose to reset our value as at July 1, 2017, must all our shares be reset, or can we be selective as to which are reset? To selectively sell shares which show a profit would incur considerable brokerage fees especially if we want to repurchase them.

Answer. Superannuation fund members with pension accounts that exceed the $1.6 million limit can choose to claim the capital gains tax (CGT) relief for assets being transferred back into accumulation. Members are not forced to claim the CGT relief but if they do the decision is final and cannot be changed in the future.

In addition to having the ability to choose between claiming the CGT relief or not, members can pick individual investments and assets they want the CGT relief to apply to. To receive the CGT relief, none of the investments or assets need to be sold. Instead the individual assets only need to be identified, with their cost base being reset to their market value at the date they are transferred back to the accumulation account. This would need to be before July 1, 2017.

The CGT relief is only available for assets up to the value of the excess over the $1.6 million that must to be transferred back to the accumulation account. The only time an asset with a larger value than the excess over the $1.6 million can be used is when it is a lumpy asset such as a property.

In your situation, either you and your husband by yourselves, or with the help of your accountant, need to go through your SMSF shareholdings and select those shares with the highest unrealised capital gains up to a market value, most likely the value at June 30, 2017, that equals the excess over the $1.6 million.