SMSF - Pension or Accumulation decision

I'm scratching my head over this one.

For a HNW person with ample resources outside of super (ie they don't need to draw pension for cashflow), highest marginal tax rate: are they actually better off to draw a pension (account is tax free for first $1.6m) or not?

My numbers are coming up with - until about average life expectancy (80-85) they are better to draw the pension. Then after that the situation reverses so they would have been better to not ever draw a pension (ie leave funds in accumulation).

Seems to be because of compounding of the unspent pension in individual name?
I did it with a range of returns 1-15%; $1.6m balance. Highest marginal tax rate.

I didn't include what happens when they die, maybe that's the issue?

 

Hi qak,

The estate planning is definitely a major consideration here. Super only passes tax free to specified dependants (e.g. spouse, child under 18, financial dependant) so sometimes it's better on death to have the money in super and sometimes its better to have the money outside super.

 

You don't necessarily get a choice, there are minimum withdrawal rates.

Percentage of account balance factors, by age
Age


Under 65 4.0%
65–74 5.0%
75–79 6.0%
80–84 7.0%
85–89 9.0%
90–94 11.00%
95 or more 14.0%

 

True. But that only applies if you choose to transfer to pension mode where income is tax free.

There is nothing stopping you leaving it in accumulation mode where the fund income is taxed at 15%.
Marg