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Supercharging your super with a transition pension

Maximum contributions can be made to super while you live off a pension, writes Max Newnham.

Maximum contributions can be made to super while you live off a pension, writes Max Newnham.

ONE strategy to increase your retirement investments is a transition to retirement (TTR) pension from a super fund while salary sacrificing extra contributions.

Q I work full time and will be 65 next August. My super company wants me to put most of my salary into super before my birthday and then draw off that for living expenses. Is this a good idea or would I be better off with a self-managed fund?

A Starting a TTR pension when you are 60 can make a great deal of sense. As the pension is tax free, you will be able to sacrifice more salary as extra super and no tax is payable on income earned to fund the pension. Doing it this financial year is important as the maximum super contribution is $50,000 a year, which is set to drop to $25,000 from July 1, 2012.

Whether you start a self-managed super fund should not be influenced solely by starting a TTR pension. For this decision to be cost effective, taking into consideration tax and accounting costs, you would need at least $300,000 in superannuation. A SMSF is a major benefit in the pension phase as it avoids the layers of bureaucracy in externally managed super funds.

Q My parents have a SMSF that has a term deposit of $375,000 earning about 6 per cent, which they draw down as a pension. They also receive a pension from Centrelink, which says we must now tell it of any income earned in the SMSF. Is this correct?

A It does not make sense that Centrelink is interested in the income from a SMSF. When a couple is of age-pension age, the income counted from a super fund is either the net pension received, or the income your parents are counted as earning from the SMSF under deeming rules.

Centrelink does need to be advised annually of the value of your parents' SMSF so this can be counted for the assets test and, if applicable, the deeming rules applied to this value. Where a pension is paid by a SMSF, Centrelink uses the value of the pension account when it is started to calculate the purchase price. This is deducted from the pension paid under the income test.

Q My husband is 73 I am 61 and work full-time. I have an SMSF consisting of $350,000 in a term deposit, $70,000 in a cash management account and somewhere between $180,000 and $200,000 in the sharemarket. My husband has $10,000 in super and receives a part pension of $65 per fortnight. I may retire in February 2012 and, if so, will my husband qualify for the full age pension or would Centrelink count my superannuation?

A Your husband's age pension entitlement appears to be affected by your employment earnings rather than the assets test. If you leave work, his pension could be affected if you start an account-based pension from your super fund. Superannuation is not counted as an asset unless someone reaches age pension age. Once a person starts receiving a pension from a super fund, Centrelink counts its value as an asset.

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