Leaving Super in Accumulation Phase

Previous

Next

20 Comments

  1. tony

    hi chris love your work. hope you can help me!..born 15 07 61, want to ” retire ” withdraw $100,000.. pay off my house. and after maybe 2+ months go back to work as fulltime casual. Is this all possible and legal…thankyou.

    Reply
    • Chris Strano

      Hi Tony, thanks!
      Your superannuation preservation age is 57, which you have met. This means that you could have unrestricted access to your super if you were to retire with no intention of returning to work. This could also be accessed tax free using the low rate cap amount. However, if you intend on returning to work, it is not possible to access your super in this way.
      The other alternative may be to wait until age 60, which provides you with the ability to have full access to your super if you ‘cease an employment arrangement after turning age 60’ – regardless of whether you return to work or not.
      Hope this helps,
      Chris

      Reply
  2. Danielle Pacaud

    Hi Chris I am age 66. I have very little super (about 50k) and my sole asset is my house, which includes an Airbnb flat. I have a mortgage owing of c80k. My Airbnb earnings can be quite comfortable, (60k in 2019 -apart from Covid). It is a redraw mortgage so I can redraw a further c$80k. I live on the edge of Hobart which is somewhat bushfire prone. This causes me a bit of anxiety because, although I have insurance, if my house burnt down I’d have no where to live, no income, and no funds to rebuild until an insurance claim was settled… then there is the time it takes to build. So I had a thought to redraw funds from my mortgage and put that into my super over summer. Then put it back after the bushfire season is over. Is that OK? I could just take $25k. Or I could take $80k. Then can I take the money out of Super and put it back into the mortgage account in the autumn? I believe this incurs no charges. Is there any danger of incurring tax?

    Reply
    • Chris Strano

      Hi Danielle,
      I think the strategy you propose might be adding more complexity than is necessary. If I were you I would consider asking your bank about how a similar outcome could be achieved using a mortgage offset account and see if that option might relieve some anxiety. Ask your lender about any fees and risks associated.
      Regards,
      Chris

      Reply
  3. John Utama

    Really good article. I’m in the process of converting from the accumulation to the pension phase. After reading your article I’m really concerned about risking my life insurance policy in the SMSF fund. You noted in your article,…’ you may want to leave some or all of your super in the accumulation phase.’, could you be more specific, how much is ‘some’? When I’m in the pension phase, I intend to withdraw the minimal amount from the SMSF, ie the earnings of the SMSF, and not touching the capital (commercial properties). Similarly, does it apply to the $25k concessional contribution? Thank you.

    Reply
    • Chris Strano

      Hi John, losing insurance by switching from an accumulation account to a pension account does not apply to SMSFs, as you are not closing down an account, as such. When switching to pension phase within an SMSF, the insurance policy will usually continue to be owned by the SMSF and the premiums will continue to be paid from the SMSF bank account. However, you should consult the SMSF trust deed and discuss the implications of switching to pension phase with your accountant. Generally, ‘some’ refers to enough to continue to cover insurance premiums for, say, at least 2 years, with the intention of topping up the accumulation account regularly, so that premiums can continue to be funded – otherwise the policy risks lapsing. Again, this is more relevant to non-SMSFs.
      Regards,
      Chris

      Reply
  4. Harold Pirotta

    Hi Chris,Thanks for your great tips you give on your site.I was born in May 1960.In August 2020 stopped working and retired after working for a small business as part time(15-20 hours per week) for 3 years .In October 2020 changed most of my Super into a Based Account income stream,getting 4% income.My last employer recently contacted me and needs my assistance to help run the business.
    Not sure if the rules allows me to go back,and work with the same last employer,as part time or even casual.
    Thanks for your assistance
    Harold

    Reply
    • Chris Strano

      Hi Harold,
      Thank you for your kind comments.
      One definition of retirement for superannuation purposes is ceasing an employment arrangement after reaching age 60.
      If you genuinely ceased an employment arrangement with your former employer in August 2020 with no arrangement to return, then it is likely you satisfied the condition of release. This means you should be free to return (casual/part-time/full-time), because your intentions to cease the arrangement back in August were genuine and followed the natural process of ending the relationship. Further, your existing account based pension can remain in place and does not need to be rolled back to accumulation phase.
      This is general information only. If you would like to consider personal advice, feel free to arrange a complimentary 15-min appt with us here to see if personal advice would be beneficial to you and your situation https://calendly.com/torowealth/15mincall
      Regards,
      Chris

      Reply
  5. Phil Parsons

    Hi Chris. Enjoyed reading your article – l am 68 retired 12 months – l left my money in the accumulation account and l am surprised how its value has increased.
    Thanks
    Phil.

    Reply
    • Chris Strano

      Hi Phil,
      Thank you for your comment. Glad you enjoyed it. Whether your super is in accumulation phase or pension phase it will still be invested. The main differences is that you are required to draw an income each year from a pension account, but not an accumulation account. Plus investment earnings within accumulation are taxed at up yo 15%, compared to 0% in pension.

      Reply
  6. Chris Tin

    Hi Chris. Thanks for great article. A 60+ retiree who transfers $1.7m balance cap to the tax-free pension stream, can leave any excess funds in the super accumulation account. But they will pay 15% tax on EVERY dollar that is earned. If they withdraw the excess funds and invest in ETFs under their own name, the first $18,200 income earned is tax free, possibly more if eligible for seniors tax offsets. And they can reduce taxable income with franking credits, foreign tax credits, accounting fees etc. Am I missing something? I guess one advantage of parking excess funds in the accumulation account, is that we can transfer money regularly to ‘top-up’ the tax-free pension account back to $1.7m as it is gradually drawn down, if this is allowed.

    Reply
    • Chris Strano

      Hi Chris, Pretty much correct. However, keep in mind that capital gains within accumulation phase of super will also only be taxed at 15% (reducing to 10% if the investment sold was owned for longer than 12 months). In relation to transferring more into pension phase – this is incorrect. Once you have maximised the amount transferred (not the balance), no more can be transferred in. Also, keep in mind, the transfer balance cap is currently $1.6M – increasing to $1.7M on 1 July 2021.
      Regards,
      Chris

      Reply
  7. Jan

    Hi Chris it’s such a relief to find your plain English explanations.. My situation is I drew my super at age 55 because of health and to live on pending workers compensation. I was granted Disability pension in 2015. After 8yrs through the courts I was awarded lump sum in arrears in compensation less pension recovered and taxed 47c to the $.
    At age 62 can I start a new super fund with the lump sum (150k)
    I am getting fortnightly workers compensation payments less penalty for accessing my super.
    (After 8yrs I have repaid 75% of what I drew to live on – so unfair)
    Currently not fit for work, however that may improve with time?
    I’m getting minimal interest on lump sum in savings account.
    Do I have any options to return to super? Thanks

    Reply
    • Chris Strano

      Hi Jan,
      Thank you for your kind comments. I’m happy to hear you found the articles easy to understand.
      Yes, given your situation, I would suggest obtaining affordable personal financial advice. If you do not have a financial planner, feel free to arrange a complimentary appointment with us, Toro Wealth, by booking in a time for a 15-min chat to see if personal advice would benefit you. Click here to book.
      Kind regards,
      Chris

      Reply
  8. Allison Windsor

    Hi Chris.
    I just found your website! Thanks for the interesting articles.
    I finished permanent part time work in March 2021 with the full intention of having a mandatory break and then returning back on a casual contract with the company, who I had worked with for the previous 12 years.
    I turned 60 in early May 2021 and I have since decided I will not take up the planned casual work with them and will retire.
    I also have ‘per diem’ work with a tribunal, which works out to about 15 hours per week and I will continue this work but I would like to access my super if possible through an allocated pension rather than a TTR.
    Would I meet the requirements of finishing with my employer after the age of 60 , as that is when I made the decision not to go back as casual or will it be taken to be that I finished in March 2021, which was a few months short of 60?
    Kind Regards
    Allison

    Reply
    • Chris Strano

      Hi Allison, interesting situation. My initial thoughts would be that the employment arrangement ended when you initially finished, unless you had returned, in which case it might not have ended at all. The specifics of your situation would determine the outcome. I can’t tell you for sure which date you would use. You might consider seeking personal advice, or discussing your situation with the technical department of your superannuation provider.
      I’d be interested in hearing the outcome.
      Regards,
      Chris

      Reply
  9. Alan

    Hi Chris we have a SMSF and and are in accumulation phase. I’m 70 not working at present and wife 67 still working part time. We are thinking of setting up pension phase soon. The question is do l need open seperate bank and share accounts from the one l have in accumulation as l wish to keep accumulation open if l can. In other words how do you distinguish between accumulation and pension accounts???

    Reply
    • Chris Strano

      Hi Alan, many SMSFs run what is called a ‘pooled’ investment strategy, meaning that the assets of the SMSF are not divided between accumulation and pension phase. The SMSF administrator simply records the proportions for each member/phase behind the scenes and it is recorded in the SMSF financial statements. The alternative is to run a segregated investment strategy, where assets are divided between members/phases. This may be beneficial if members have largely different objectives and risk appetites. Here is an article that goes into more detail https://www.superguy.com.au/pooled-vs-segregated-assets-smsf/
      Regards,
      Chris

      Reply
  10. John

    Hi Chris, I’m 60, I plan to go on annual leave then long service leave for 12 months from Oct 2021 then retire in oct 2022.
    Currently I have 1.73 m in my super fund & will have about 200k in savings. When I retire should I leave my super in accumulation mode to continue to grow & live of my savings for 2 years. When I do change to pension mode the balance above 1.7m that stays in accumulation mode, when does the 15% tax on earnings start?

    Reply
    • Chris Strano

      Hi John, thank you for your question. You are currently in an ideal position right now (based on your age and level of retirement savings) for a number of tax-effective retirement strategies. Whether you should be leaving your super in accumulation phase or not right now depends on other factors such as your living expenses, super contributions, etc. The 15% tax on earnings from investments within your accumulation account is already happening and has happened ever since you had an accumulation account. In order to optimise your position now and maximise your savings between now and Oct 2022, I would strongly suggest obtaining personal retirement planning advice, because I am confident the financial benefit achieved from good advice will far outweigh the costs of advice. If you do not have a financial planner, feel free to arrange a complimentary consultation with us at Toro Wealth, by booking in an appointment time here https://calendly.com/torowealth/15mincall
      Regards,
      Chris

      Reply

Submit a Comment

Your email address will not be published. Required fields are marked *