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 ASK THE EXPERT |
 Advisor Lounge
Allocated Pensions and the new tax-free rules
Jeremy Gillman-Wells, financial planner, Bentham Financial Group
August 21, 2008
Question:
My Allocated Pension was started prior to 1 July 2007. Do I have to convert to an Account Based Pension so that I can withdraw more than the maximum under Allocated Pension? I am 65 yrs.
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Today's expert:
Jeremy Gillman-Wells, Bentham Financial Group |
Response:
Any allocated pension in place prior to 1 July 2007 automatically came under the new rules once a trigger point is achieved. In your case, the trigger was age 60. So the components of your super are now called taxable and tax free and the entire pension payment is non-assessable and tax free to you.
Now as to minimum and maximum payments, when the changes happened on 1 July 2007, allocated pension product providers did not compulsorily have to change to the new payments system for existing allocated pensions. That is, they could keep paying along the lines of the "old" minimum and maximum limits. However, if terms of keeping their offer contemporary, most allocated pension providers have simply applied the new rules for their members (see below).
If your product provider has not updated to the new system, you can switch/rollover to a new provider who does use the new rules. Make sure you check any exit penalties or new entry fees before you make the switch. Alternatively, if you have self managed fund, you could simply update the trust deed for it to include pension payment options under the new rules.
New minimum standards from 1 July 2007
A minimum pension payment must be taken each year (determined as a minimum percentage of the portfolio balance). The rule allowing the deferral of first payment to the next financial year for income streams commencing between 1 and 30 June inclusive (i.e. the 1 June rule) remains.
There is no maximum payment - you can draw the entire balance if you wish. This would have tax consequences if you aged between 55-59, or completely tax free and non-assessable if you are 60+. The exception is for transition to retirement (TTR) income streams, which will be limited to 10% of the account balance per annum. There is no pro-rata amount based on the maximum annual amount for a TTR income stream commencing after 1 July. A provider may choose to pro-rata the maximum.
The pension may be paid as a reversionary pension on death, but only to a tax dependant. Non-dependant beneficiaries can only receive a lump sum payment. If payable to a child under 18 it is only payable until age 25, unless the child has a severe disability.
The minimum pension payment is a pro-rata amount based on the minimum annual amount and the payment period remaining in the financial year.
Minimum draw-down percentages
Disclaimer: This article is general in nature and is not intended as investment advice. Readers should always seek further advice before making any financial decisions.
Jeremy Gillman-Wells is an Authorised Representatives of AMP Financial Planning Pty Limited | ABN 89 051 208 327 | AFS Licence No 232706.
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