SMSF - Pension Phase

Few questions about pension phase.

Say there are two members in a SMSF with $100k member balance each. One member is old enough (between 65-74) for pension phase but the second person isn't. Person A wants to start pension phase on 1st July for 100% of their member balance.

1. Does Person A need to do anything to start pension phase? Some sort of paperwork?
2. Does the minimum pension (5%) need to be paid weekly, monthly or can be paid once yearly just before 30th June?
3. If the SMSF only does share trading, does it mean whatever shares are currently held are "rolled over" from accumulation phase into pension phase, or does those shares first need to be sold & new shares need to be bought in pension phase?
4. How do you distinguish which shares are traded under pension phase for Person A & accumulation phase for Person B? When it comes tax time couldn't you just nominate all the profitable trades to be for Person A in pension phase therefore there's no tax and if there are any loss trade, nominate those trades to be for Person B in accumulation phase therefore the losses will be carried forward for Person B?

 

Yes the member needs to request a new pension, the type of pension and the trustees need to resolve to commence a new pension with the terms of the pension outlined.

It must be paid at least yearly.

The % depends on your age.

Your smsf does not need to sell assets to commence a pension.

You need to keep records that distinguish between which assets are traded for each member.

I have seen guys right down their daily trades in an exercise book. And the do this in pen so you can't scrub it out.

The ato are concerned about people doing what you suggest and the onus is on you.



Cheers mate.

 

Pension accounts represent the portion of a members total balance where the member elects to receive a income stream and the rules of the fund permit it. This turns off tax for that portion of the fund. In some funds a member may elect specific assets that apply to their balance etc. This is called asset segregation.

Yes, pensions require documentation. For a $200K fund the costs may not be worth the effort. Remember the tax saving is the earnings of the fund x 15%...So if the fund earned 5% the income would be $10K and tax savings from a pension $1500. A fund with part pension and part accumulation would need an actuarial cert and that adds to costs ($200?). And the accounting and tax may be more complex...If the wrong software is used.

It can be more costly to use segregated asset strategies or it can be simple. There are some simple strategies to address this. eg Member A uses one Commsec acct and Member B uses another. There are many other ways.

If I were you I would seek tax and financial advice so that compliance, benefits and costs can be determined and a valid decision made.

Tip : A pension can be commenced before age 65 !! I suspect you need advice to determine the rules. It may be that both members can draw a pension and could have been doing this for some time. This mistake is common with well intentioned DIYers who want to avoid costs. They end up costing themselves $$$. We often detect compliance errors and mistakes in SMSFs too.

 

To clarify, the member just writes a letter to our SMSF stating they wish to start pension phase for 100% of their member balance, then the SMSF writes a letter back to the member saying that they will do it, then the trustees resolve that the member is going to start pension phase with 100% of their balance, paid 5% once a year (aged 65-74).

Considering it's the digital age, how could the ATO require that trades be written down manually. Wouldn't an Excel spreadsheet in electronic version be sufficient?

 

What type of costs are there for the documentation? Is it just the letter from the member, one back from the fund accepting it & a trustee's resolution?

Would the same broker allow you to open two brokerage accounts in the exact same name? I guess it would need to be different brokers.

Yes, will get in touch with our accountant.

 

Hopefully the accountant has an AFSL (Australian Financial Services License) otherwise they cant give the required advice.

Accountants cannot give SMSF advice but financial advisers can - Some accountants may have a limited license (which wont help) or no license (again no help) or may be licensed.

 

Their is a bit more and you need to read the smsf deed - but that is the guts of it.

I can double check but will need the deed if you pm it - no charge.

They don't - it was a way to do it.

You can keep it electronically but you then have the problem of proving that it was not fiddled with after the event.

Paper did the trick but their are lots of ways to track.

Different bank accounts and so forth.

 

Perfect

 

Thanks. One more question, are you classified as a "pensioner" once you start receiving a pension and able to get pensioner discounts? Eg. when you buy medicine or transport tickets & if so, how do you prove it as you don't have a pensioner card. I would assume so since you are receiving a pension from your SMSF.

 

No. A aged pensioner is different to a superannuation pensioner.
The super income counts to both Centrelink cards and Seniors Card (state based)

Home - Seniors Card
Pensioner Concession Card - Australian Government Department of Human Services

 

Pensioner discounts apply to those on a Centrelink pension.
Marg

 

See a professional, the above business member posters are exactly that. Under the new rules from 1 July there are estate issues etc that need to be carefully considered when starting pensions. It's not that it's overly difficult but it really pays to get this stuff right up front so you don't regret it down the track.