Mercia | Taxation, Business & Finance Advisers

ACCESSING YOUR SUPER – written on 10 April 2011

Yes, provided you have reached your retirement age otherwise known by us tax professionals as your ‘preservation age’. What’s better you can access it while still working….read on to find out more

Since May 2006, you are no longer required to withdraw your super or commence an income stream once you reach a particular age. The Government wants you to save so regardless of your age or employment status, you can leave your money accumulating in your super fund in the tax advantaged environment for as long as you like.

When you retire, you stop receiving your salary/business income, so you need to start using your savings, or for most of us drawing on our super.  Once you are entitled to access your super you might want to take it as a lump sum or invest in a pension or annuity to provide you with a regular income stream. Put simply, pensions are available from Super funds, whereas annuities are available from life insurance companies.

You might choose to:

• Access your super as a lump sum
• Roll it over to a pension or annuity product and commence a regular income stream
• Leave it accumulating in your super account
• A combination of the above

SUPER INCOME STREAMS

By drawing on your super through a pension you can access (1) a regular income and (2) access tax advantages. One of the main tax advantages is income from your pension account is tax exempt….yes you heard right…..earnings are tax free!

On 1 July 2007 new products called ‘account based income streams’ were introduced that must pay a minimum amount at least annually but there is no maximum, allowing people to draw out as much as they wish, including lump sums – even the entire balance.  Upon your death, the unused portion can be transferred to a dependant or cashed as a lump sum to your estate.

The only exception is where your drawing a pension while working at the same time, then there is restrictions on accessing your super/pension see below. Read on to see how it works:

What is a Transition to Retirement Strategy? – withdrawing super while working

Once you reach your preservation age you can draw from your super by simply asking your accountant to effectively rename a portion of your super savings to a “non commutable pension account” to start a retirement income stream. There is a bit more to it than this, but of course from your viewpoint it is a seamless exercise as your accountant will do the work behind the scenes for you.

The reason why you can draw from your super savings in this way is because the Government wants to help people shift from work life into retirement, and (1) pro-long retirees in the workforce due to the ageing demographic and (2) help you add to your super savings by continuing to work and contribute to your super.

These tax changes offer a great way for many people who have reached their preservation age, not just those who wish to scale back their working hours, to increase their superannuation savings.

THE ADVANTAGES

• Pay less income tax by contributing more to super, reducing your taxable salary, but maintaining your take home cash amount by withdrawing from your Super (non commutable pension account portion of your SMSF).
• Semi retire, work less hours but withdraw from your Super (non commutable pension account portion of your SMSF) to achieve the level of “take home cash” you need.

When can you start a Transition to Retirement Strategy?

You might remember us saying that you can start when you reach your preservation age <click here to find out when you can start – see point 21 – Preservation Ages>.

Follow these steps assuming you have a SMSF:

Contact us to create a SMSF – for further details on costs <click here>…remember your super money pays for these costs.

Step 1 – Salary Sacrafice part of your salary into Super – If you work for yourself then if your drawing a salary, reduce your salary and the reduced amount direct your employer to pay it into your SMSF.  If you are self employed then you simply pay the additional amount into your Super as a employer contribution.

If your over 50, then you can increase the amount you pay into your super, new rules are coming in at the time of writing this restriciting this increased amount of super contribution…contact <Mercia Taxation & Accounting> to find out more.

Remember the super your employer contributes (your salary sacrificed amount) is taxed at the super tax rate, 15% at the time of writing.

Step 2: Call your Accountant to “convert a portion of your Super Savings into a Pension Account

The amount you convert from your super savings to a pension will determine the maximum and minimum amount you can withdraw on a regular basis. Therefore if you want a certain amount from your super we need to do the calculations to determine the balance you need to convert from super savings to the pension account.

Remember because you have not fully retired, you are only allowed limited access. The government only allows you to withdraw your superannuation savings in regular ongoing payments, i.e. as a pension. You are not allowed to withdraw your savings as a lump sum as you can when you have permanently retired.

<click here to find out the maximum regular pension withdrawal you can make – see point 18 – below the preservation Ages ….or <contact <Mercia Taxation & Accounting> to find out more

Step 3: – How do I withdraw the money from my Super – Pension account?

After step 2 you can effectively create a recurring internet banking transaction transferring funds from your SMSF bank account into your personal bank account……its that easy.

You now receive cash from your employer as a salary and a ‘top up” from your super – job done and done properly your saving tax therefore saving more!

Warning

This transition to retirement strategy is a great strategy but if your withdrawing more than you are topping up, then your retirement savings will be reducing not increasing, so be careful and use your super money wisely.