SMSF Pension, Non-concessional contributions

A member has been in pension phase for 100% of their member balance for a number of years. The member will be in paid employment in both the entire 2020 and 2021 financial years and each of those year will receive $5k in super from their employer, therefore that amount ($10k) is in accumulation phase.

On the 29th June 2020 their SMSF will pay a $100k pension which the member will immediately transfer back on 30th June 2020 as a non-concessional contribution. On the 1st July 2020 their SMSF will also pay a $100k pension which the member will transfer back on the 2nd July 2020. This is to reduce the taxable component of the member's balance.

1. Can the 2nd pension start on the 1st July 2020 with only the $200k tax-free amount or does it have to include the $10k amounts in accumulation phase which has a taxable component, being a total of $210k for the 2nd pension?

2. If there are 2 pensions for a member, does the bank account transactions for the minimum pensions come out as 2 separate transactions, or can the minimum pension of both be sent as one transaction?

 

How old is the member? This may affect how much they can contribute on a non-concessional basis.

 

In the 65-70 year range & meets the requirements of the work test. Superannuation balance is also way below the $1.6mil limit.

 

Why don't they take out the accumulation balance & pension in June, recontribute $100K as non-concessional (& start pension immediately); take out pension 1/7 and recontribute, start another $100K pension?

Otherwise you will end up with a mix of taxable & tax free components.

Of course you need to check if this is actually achieving anything, do you know what the current taxable/tax free of the pension account is?

PS no need to leave it until 30/6

 

A pension reset may need to be considered. This involved a commutation and a new pension on the same date which would incorporate the accumulation (to avoid actuarial certs maybe etc) . Also I dont believe that you will wash the tax elements doing what you say. You will dilute them at best. The TBAR reporting aspects also impact and may mean all the docs need supervision. Member work tests, caps and age and other isssues also affect this. There could even be a tax benefit of recontribution as a part concessional amount.

 

Are members allowed to choose if the amount they take out is from the accumulation balance or from the pension balance? Eg. if taking $100k out then take the full $10k out of accumulation balance and the other $90k from the pension balance?

 

To do a commutation and a new pension, would that mean that all the member's pension balance would need to be in cash? If most was currently in shares then it couldn't be done I presume?

If there are 2 pensions for one member, does there need to be 2 bank transactions out of the SMSF bank account when paying the pensions to that member?

 

1. Withdrawals may be from accumulation , pension or both. I would be likely be concerned or asking why there is an accumulation element as maximising exempt pensions is often desirable. Conditions of release may need to be met for the accumulation which need not apply to pensions. What type of pensions are the two accounts ?
2.Cash ? No that is absolutely incorrect. Is the pension based on segregated or non-segregated assets too ? A pension need not be specific to fund assets, but it can.
3. The reasons for maintaining multiple pensions may be lacking a sound basis. There is no regulation specifying how and the manner of pensions being paid. excepting the minimum which is based on a financial year ended 30 June.

You may benefit from adviser support.

 

From the OP, the member has triggered a condition of release clause, being over 65. There is amounts in accumulation phase as the member is employed and meets the work test.

Basically, the proportioning rule means that the components making up the balance of the member's interest in the fund, make up the member's pension payment. You can't take just the tax free portion and convert to pension status.

Be aware that both the non-concessional amounts and the employer SGC will go into an accumulation account, and any earnings in the fund on this portion will be taxed at 15% (10% for >12 mth cap gains) These amounts can be converted to pension phase (or retirement phase as it is know known) as the member has hit a condition of release, on the day they hit the account.

 

Depends on the member account structure too. You can have two accounts (not two accumulation in one fund however) with one tax free and the other not or blended. In which case you can draw down the blended with larger amounts and leave the tax free drawing just the minimum pension ideally for a death benefit to specified beneficiaries or the estate subject to the will (so adult beneficiaries are subject to tax) . With the revised minimum pensions this may even be a wise strategy since CV19 took effect so that taxed element can be run down