Rollback Pension to Accumulation

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14 Comments

  1. Sue reinker

    It was interesting reading your article.I. Am commuting my pension account balance to accumulation an accumulation account.
    As a trustee the auditor requires me to raise a minutes to reflect this.
    Do you have a template I can use to do this minute.

    Regards

    Sue

    Reply
  2. Emanuel Giuliano

    What are the rules for rolling a pension account to accumulation, then say 12 months or more later, transferring some or all the the amount transferred back to a pension account

    Reply
    • Chris Strano

      Hi Emanuel, you can generally transfer all or some of a pension back to accumulation phase and then use some or all of that amount to recommence a new pension. Any amount rolled back will provide a credit for Transfer Balance Cap purposes.
      Related Post
      What is a Transfer Balance Cap?

      Reply
  3. Daniel

    What happens to preserved and non-preserved components when you rollback a pension (unrestricted non-preserved) into ana accumulation account that is fully preserved. Do they remain separated or does the entire balance go into preserved.

    Reply
    • Chris Strano

      Great question Daniel. My interpretation is that they retain their preservation status regardless of where they are held

      Reply
  4. Henry

    What asset would be beneficial to roll back into super? Growth or defensive?

    Reply
    • Chris Strano

      I assume you are talking about rolling back from pension to accumulation phase.
      As a very general rule of thumb it would be growth assets to roll back, this is because they usually provide less income and therefore less income tax each year. Also, because growth assets have a higher growth expectation, the asset might be able to be trnasferred back into pension phase at some stage in the future prior to being sold and therefore received tax free.
      Pension phase is also better suited to assets with less volatility to provide more certainty of income and less likely to be sold at a signficiant loss over the short-term to cover pension payments.
      Hope that helps,
      Chris

      Reply
  5. David Foster

    Hello Chris,

    I and my wife are contemplating rolling back our pensions (SMSF) to accumulation phase so that we can may Downsizer Contributions for each of us. I am age 67 and my wife is 65 and neither of us are working.
    Once contributed we would then restart the pensions for both of us.
    Are you aware of any significant downside in this strategy

    Reply
    • Chris Strano

      Hi David,
      There are several to consider with this strategy. Firstly, I’m not sure why you are considering rolling back your existing pensions. Depending on your situation, it may be better not to. Rolling back could have other ramifications. Unfortunately it’s a very broad question. Without knowing your full situation, it’s very difficult to determine the potential risk or considerations.
      Sorry I am unable to be more precise.
      Regards,
      Chris

      Reply
  6. Cheryl

    Hi Chris,

    Would love it if I could clarify:

    1. The lifetime transfer balance Cap is 1.6 Mill (currently). If we transfer $600K from super to pension and commute $100K (either by transferring back to Super or lump sum withdrawal) from pension account. Does that mean my lifetime cap is now reduced to $500K?

    2. In your above example: if I had used my lifetime cap of $1.6mill to start a pension account, does it mean I won’t be able to commute and reduce this lifetime cap anymore?

    Regards,

    Cheryl

    Reply
    • Chris Strano

      Hi Cheryl,
      Withdrawals from a pension account in the form of rollbacks to accumulation or lump sum withdrawals (pension commutations) will provide a credit, but pension payments will not. So, yes, the cap would reduce to $500k. The credit applies regardless of whether you have maximised the cap or not. However, keep in mind that when the cap increases due to indexation (e.g. $1.6M to $1.7M) you do not necessarily get an additional $100k cap. Your additional cap will be based on the proportion of the cap you have already used. So if you have maximised the $1.6M and the cap subsequently increases to $1.7M, you do not get any additional cap, because you have already utilised 100% of the cap. If, say, you have only used $800k of the cap, you would get 50% of the indexed cap amount ($50,000) of the cap increased to $1.7M. I hope that makes sense.
      Related Posts
      Transfer Balance Cap Explained
      Transfer Balance Account Record

      Reply
  7. Rodica-Maria

    Hi Chris,
    In order to increase the tax-free component of my pension account I recently withdrew 300k from my pension and accumulation accounts (200k from pension + 100k from acc account) and recontributed it to the accumulation account using the bring forward rule . I became 65 in august 2019. I then created another pension with most of the accumulation balance. Therefore I now have 2 pension accounts: the remainder of the initial one with a poor tax free component(P1) and the new one with almost all tax free component(P2). As I am still working full time I do not need the pension payments and try to figure out how to best reduce it for the time being without diluting my tax-free component of P2. The new pension P2 has been initiated on 10 July 2020 and both payments are set once per year at end of October. In the accumulation account I have around 7k left. I’m not sure if this is possible but you might have some suggestions.

    Many thanks,
    Rodica

    Reply
    • Chris Strano

      Hi Rodica,
      You need to ensure you receive at least the minimum required pension payment from each pension. Each withdrawal must be made proportionately from each component. By taking the minimum payment from a nearly 100% tax-free pension (P2), you are not diluting your tax-free component, but you are reducing your savings in the tax-free pension phase of superannuation. Should you choose to roll back the pension to accumulation phase, all earnings (positive and negative) are effectively applied to the taxable component. If you roll both pensions back to accumulation phase, the P2 pension is contaminated with P1 taxable components, as they will no longer be separate superannuation interests.
      I probably haven’t told you anything you don’t already know, but there is no real way around this, assuming you have maximised your non-concessional contribution cap. If you have space in your non-concessional cap down the track and are eligible to make contributions, pension payments could be recontributed back into super.
      Apart from that, you may consider calculating the difference in annual earnings tax payable (including potential death benefits tax) if you were to roll back to accumulation phase vs your current position of accumulating pension payments in your individual name and having earnings on these amounts taxed at your marginal tax rate.
      Hope that makes sense.
      Chris

      Reply

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