Tax with Max: Industry vs. commercial funds

How pension age compares to super preservation age, and the origin of industry funds.

Summary: For those born after June 30, 1952, the pension age test increases in half yearly increments from the age of 65. If you were born between July 1 1952 and December 31, 1953, your pension age would be 65.5. Ensure you know your pension age before planning your retirement.

Key take out: Those looking to retire before the age of 65 should seek professional advice to determine strategies to ensure you can continue to fund your current lifestyle.

Key beneficiaries: General investors. Category: Tax.

Stopping work before the age pension kicks in?

I am turning 60 in April, I currently have $200,000 in super and at 60 will take a transition to retirement pension. When I retire I would probably take an income stream from my super. I would like to know whether I would qualify for any aged pension at 65.5, my retirement age, but I would like to stop work before then if I can afford to?  My husband is 63, has $80,000 in his super, we own our home, have a car and caravan.

Answer: Under the age test rules, a person does not qualify for the age pension at age 65 if they were born after June 30, 1952. The age test increases for both men and women in half yearly increments for people born after June 30, 1952.

The pension age increases to 65.5 for people born between July 1, 1952 and December 31, 1953 and increases to 66.5 for people born between July 1, 1955 and December 31, 1956. If you turn 60 in April this year this means you would not qualify for the age pension at 65.5 but will have to wait until you turn 66.5 in approximately October 2021.

On the basis of the income and assets described, this should qualify someone in this situation for some age pension once they reached age pension age. As to whether you can stop work before then will depend on being able to use the extra cash produced from a TTR pension to increase superannuation assets.

When it comes to the retirement age to access superannuation by ceasing full-time employment, if you were born in May 1956, your retirement age is actually 55 and not 65.5. To retire before turning 65 you should seek professional advice from someone that specialises in tax, Centrelink and retirement planning.

They will look at how much income that each partner in a couple is earning and, after establishing how much is spent each year to fund your lifestyle currently, suggest various strategies that will enable and earlier retirement while at the same time maximising the age pension that you both receive.

Explaining industry funds

In the January 2016 article “Tax with Max: Rolling SMSFs into industry funds” there were terms for which I would like some clarification. They are:
•    Industry Fund
•    Account based pension
•    Age pension
Also, as Max Newnham wrote, why would we “over time roll over the funds in an SMSF into an industry fund”, why would we not do it all at once?


Answer: Industry super funds were originally set up to provide superannuation to members of specific industries. They differentiated themselves from commercial funds, which are owned and managed by companies to produce a profit for shareholders, by having lower administration fees and not paying commissions to advisers.

Originally the benefits of having very low administration and investment fees was often offset by fewer investment options and members did not receive the same level of service as members of commercial funds.

Over the years, through amalgamation and improvements, industry funds have come closer to what commercial super funds offer. There are some industry funds that have remained industry specific, such as Cbus, that provides superannuation for people in the construction and building industry.

The modern industry funds now offer a lot more choice when it comes to investment options for members and are starting to improve the service levels provided. In many cases commercial funds not only have higher administration and investment charges, but require advice from financial planners that increases the cost for members.

Account based pensions, prior to the introduction of the new superannuation system on July 1, 2007, were called “allocated pensions”. Account based pensions are paid by superannuation funds once a member has met a condition of release. There is no maximum limit on what can be taken as an account based pension, but there are limits placed on the minimum amount that must be taken each year.

The age pension refers to the pension paid by the Commonwealth government to people who pass the age test, the assets test, and the income test.

The reason I wrote that amounts would be rolled out of an SMSF into an industry fund over a period of time was to recognise that some SMSFs have investments with different maturity and liquidity characteristics. If an SMSF had all of their funds in liquid investments, there would be nothing stopping the rollover to an industry fund being done in one payment.

Industry fund vs. commercial fund for SMSF rollover

I am aged 72 and my wife is 70 and we are both worried about not being able to run our SMSF in the future. We have the choice of rolling our superannuation into either a commercial super fund or an industry fund and close our SMSF.

How do we choose whether a commercial fund or an industry fund will be best for us, and how do we go about closing our super fund and rolling the money into whatever fund we choose?


Answer: The first thing you will need to work out is what level of control and input that you and your wife will want with regard to investing the super fund pension account balance. Commercial super funds offer a wide variety of investments including listed shares and managed funds but, unless you are confident in making the investment decisions, you would need the assistance of a financial advisor.

One area where industry funds had lagged behind commercial funds is the investment choices offered to pension fund members. Some industry funds have now updated the investment options for members in pension phase to offer a wider variety of investment choices.

For example, Australian Super offers traditional premixed investment options ranging from capital guaranteed to high-growth. If you both do not want, or are not able, to have control over the investment of your superannuation, then premixed options might suit in this situation. 

In addition, Australian Super offers the ability to select from the different asset classes and choose what percentage will go into each of the classes. They also have a member direct investment option that allows investment in ASX300 listed shares and a selection of exchange traded funds and term deposits.

There are a number of web-based services that can compare industry and commercial super funds. Some industry funds on their websites offer the use of a service by Chant West that enables members to directly compare the performance and cost between an industry fund and a selection of commercial funds.

The process of rolling superannuation into either an industry or commercial fund starts with converting all of the investments to cash, becoming a member of either the industry or commercial fund, and then transferring the funds from the SMSF to the chosen fund.

There are many things that should be considered in making your choice and you should seek professional advice before doing anything.