Super Contributions

Can you still make concessional and non-concessional super contributions once you switch to pension phase? Or can you only make contributions in accumulation phase?

I'm in my early 60s and retired.

I've sought advice and have been told that I can't make contributions once I switch to pension phase, however, my FP is telling me that I can still make contributions in pension phase.

My FP wants to switch me to pension phase at age 65, however, if I can non longer make contributions once switching, then I would prefer to wait until I'm 67 before switching to pension phase. I can get my last concessional contribution ($27.5K) in at age 66, and if the bring forward rule changes to age 67, then I will be able to get in a further $330K at age 67. I don't want to miss out on those opportunities given that I can only get a very limited amount (a bit under $600K) into super due to starting so late.

 

Not qualified to provide advice, drive trains, juggle... Etc

AFAIK you can have a fund in pension mode & if you meet the work test (& other conditions) open another in accumulation account.

If your fund runs a preparation for retirement seminar, attend it to find out more.

Linky - a little info

Linky - preretirement seminars

 

I believe the work test is being removed for those up to age 74, courtesy of the recent budget.

 

Yes you can still make contributions, you will just be creating a new account. If your existing fund is a DB fund you may not be able to contribute into there.
You might want to think about starting different pensions at different times to separate your taxable and tax free components.

 

From July 2022.

 

I'm guessing I would have to pay for two accounts if I had both an accumulation and a pension fund. Is that right? What would be the point of having two funds? Doesn't it make more sense just to wait until I've made all my contributions before switching to pension phase? My FP didn't say anything about having both an accumulation and a pension fund. I'll have to double check with him.

Thank you for those helpful links. I'll check if my fund runs a seminar.

 

You can’t add to an account in pension mode.

But you can contribute to an (additional) accumulation account if eligible. In due course this can be changed to a pension account.

 

Yes, I heard that, too. But what is the maximum age you can make a concessional contribution? I believe that the maximum age to make a non-concessional contribution is currently 66.

 

I Googled a DB fund... I have never heard of a Defined Benefit fund, I'll do some reading about them.

Why would I want to start different pensions at different times? I don't really need my super to live off and would be happy to just let it accumulate (for my kids).

 

Yes, that's what Australian Super told me. They also told me that I would have to pay for two separate accounts if I wanted an accumulation and a pension fund. I don't really understand the benefit of having two separate funds (accumulation and pension). I don't need the money in my super just yet, so I'm happy to leave it in accumulation phase to grow.

 

Ive run two accounts for the last six years that I have been retired

I pay myself a pension from my original account.

I also still have my side hustle and make payments to an accumulation account as this helps with my tax and I get a little bonus as I qualify for a low super benefit which rebates the tax on my super.

 

Thanks for sharing. Do you only have two accounts because you have a side hustle? Are two accounts only required if I need a pension now, but I also want to make contributions over the next few years?

 

Yes, you only need one pension & one accumulation fund but you can have several as noted elsewhere.

 

You may have multiple pension accounts but each fund may only maintain one accumulation account. Many people who have retired may no longer have an active accum account. Some funds allow a pension to be craeted without an accumulation amount BUT the rules are very strict eg ONE single deposit etc. Pensions can be commuted and reset but tax and financial advice may be wise. Some pensions (eg TRIS) must meet a full condition of release to be commutable .There are strategies around a choice to have multiple pension accounts and some Centrelink rules may benefit NOT commuting some pensions as they lose grandfathered exemptions.

Superannuation law (SIS Reg Pension Standards) prohibits additions to a pension account once it commences. Breach of this standard mean a pension is not complying and the fund will be subject to tax on member earnings and the member taxed on the amount even after age 60. Tax laws refers to "complying pensions". Its not the fund being difficut but very complex laws they must follow.

Another "rule" to a pension is it MUST pay a mimumim pension which is age based. The older you are the more that MUST be drawn. You cant choose tax free earnings and also leave all super in accumulation. Only pension balances and amounts drawn are tax free.

Leaving super to your kids without advice may see them paying 17% tax on their inheritance.

 

Thanks for that information.

I'm a little confused about what to do now.

Initially, my FP advised to leave my super untouched (ie. in accumulation phase) and to obtain an income from my non-super shares portfolio. But recently he has changed his mind and said that it might be best to switch to pension phase asap. I spoke to him again today and he has recommended keeping both an accumulation account and a pension account. He said contributions will go into the accumulation account and I would withdraw the minimum requirement from my pension account.

It's not really my intention to leave my super to my kids. I just thought I would wait a little longer before switching to pension phase so that I can allow my balance to grow a little (since I can only get a small amount into super). I thought I would wait until I'm around 67 before switching to pension phase. I'm not sure what's best, but my FP has advised switching to pension phase asap.

 

If you intent to draw down the pension, please seek advice of the timing to withdraw $300k and recontribute back to your accumulation, which essentially convert the portion of before tax (concessional contribution) into after tax thus avoid paying death tax of 17% to non-dependant adult children.

 

I don't entirely understand what you've advised, but I will ask my FP about it -thank you. Unfortunately, super does not appear to be one of his strong points, but I'll see how we go.

 

You need an accumulation acount if:
A You have a job that pays an income that is subject to the Super Guarantee, even if it is part time. (And the majority of your income comes from the pension account)
B You are self employed (through a hustle) and want to take advantage of the tax and low super assistance situation.
Originally both A & B above applied to me as I worked part time for the first three years of retirement but for the past 3 years its just been B.

 

A Yes
B Yes

Contributions must be made to an accumulation account.

 

I would definitely consider having both Accumulation and Pension accounts if you are eligible. You also want to have as much as possible in the Pension account.
Why? Accumulation accounts pay tax at a rate of 15%. However this is reduced by the user of franking credits and long term CGT discounts. Pension accounts don't pay tax on earnings. Here is an example using the Australian Super returns for the last 11 years, comparing the Balanced options:
Year Accumulation Pension Difference
2010 10.06% 11.92% 1.86%
2011 10.27% 11.00% 0.73%
2012 0.98% 1.49% 0.51%
2013 15.63% 17.17% 1.54%
2014 13.88% 15.93% 2.05%
2015 10.86% 12.60% 1.74%
2016 4.54% 4.72% 0.18%
2017 12.44% 13.60% 1.16%
2018 11.08% 12.01% 0.93%
2019 8.67% 9.47% 0.80%
2020 0.52% 0.55% 0.03%
Average 8.99% 10.04% 1.05%
The return of a pension account vs. accumulation is 1.05% better averaged over 11 years.
What does this mean? If you have a balance of $400k, your returns will be on average $4,000 better off p.a. You also have to withdraw a minimum starting at 4%, so you need to withdraw $16,000. But your returns are 10% on average. So after year one starting at $400k the balance could be $400k + $40k - $16k = $424k. You then have $16k to either spend, invest outside super, or maybe contribute to an accumulation account.