When you convert a pension to an accumulation account (where investment earnings are taxed at 15%), you will need to record this as a debit to your transfer balance cap.

Debits give you the option to restore an updated pension. But they must be properly documented and reported to the Australian Taxation Office as transfer balance cap events.

Main advantage

Colley says that in situations where you have enough money to live off your personal resources without tapping into your super, it might allow you to stop an account-based pension and transfer it to the accumulation phase if you thought that the value of the fund’s retirement investments may decline.

While tax is payable on the fund’s accrued income, Colley says, the main advantage of this strategy comes from the fact that there is no need to deplete the fund’s investments by having to pay pensions.

In addition, when you consider that the value of certain investments is high, nothing prevents you from transferring an equivalent amount from the balance of your pension in the accumulation phase of your fund.

Then, if the value of these investments falls, you may be able to transfer this value into the retirement phase. This way you can use the ups and downs of investment values ​​to your advantage.

Also, anyone who has used all of their ceiling to start a retirement may wish to withdraw the minimum pension and, if necessary, supplement their living expenses from the sums they may have in the accumulation phase in the fund. or possible personal investments.

This helps to ensure that the proportion of the fund’s investments supporting the income stream is maximized, says Colley.

Peter Crump, a senior consultant with BDO’s private wealth division in Adelaide, says holding a retirement account in a super fund brings the privilege of investment income on the assets supporting the retirement being tax-exempt. ‘tax.

It also entails a responsibility that income payments must be made from the pension account at prescribed minimum levels. For a super retiree aged 65 to 75, for example, the normal minimum pension withdrawal is 5 percent of the pension account balance at the start of the year.

This minimum requirement has been reduced by 50% for the financial years ended 30 June 2020, 2021 and 2022, bringing the minimum annual draw down to 2.5% of the pension account balance at the beginning of the financial year.

Crump says whether the minimum pension concession could be extended for another fiscal year will likely be announced in the March 2022 federal budget.

Cash management

When planning any strategy that involved living on minimum pension withdrawals, what needs to be considered is the management of the fund’s liquidity to support the required payments.

The first consideration is to deliberately hold enough cash to make these payments over the next 12 months or so, which means there will be no need to sell assets to make the pension payments.

The strategy of having a buffer to provide sufficient cash flow to pay pensions during an economic downturn is a good strategy.

Hopefully this will help you ride out any downturns so that when things go well, the overall value of the fund’s investments that you haven’t sold will increase significantly.

The most common investments to build up a safety reserve include cash and term deposits and other liquid assets.

A rule of thumb suggested by some advisers is to have enough cash or liquid investments that you could sell to support three years of pension payments.

If you don’t want to hold so much cash to support pension payments, you can apply payments to investment income as they are received.

For example, Crump says, if an investment property is owned by the fund, rental income could provide enough cash to cover required pension payments.

Pension payments do not need to be made evenly throughout the year and may be made towards the end of the year after the fund has received income from its investments.