Q: SMSF - starting pension, what docs?

We have an smsf, are over 55s and been thinking of starting the pension.

We would like to ask questions from forum experts and those who have taken pension from their smsf before 60.

We understand that we have to review and amend the smsf trust deed to allow us to start the pension. We have seen trustdeed.com.au advertised to update the deed for $110, whereas the accountant wanted $550 or more. Has anyone dealt with trustdeed.com.au?

We only have shares in the smsf, and so thought it might be simple for us to do all the paperwork, instead of the accountant (who has the tendency to send us an invoice every time we phone him). Does anyone know what kind of paperwork is involved in the process? We have seen trustdeed.com.au selling "account based pension documents" for $275. We are not sure if these documents are all we would need.

Should we wait until 60 to take a pension instead of now, to save all the hassles with the paperwork and tax - after 60, all the earnings in the smsf will be tax free.

Thanks in advance!

For documentation/admin try asking the ATO. They are very helpful.

Contrary to what many legal advisory services suggest, the ATO is not trying to shoot down a SMSF on legal technicalities and are able to point you to the more relevant areas that you should address in your deed.

You will need to register for withholding tax from payments.

As to whether you should commence an income stream right away, I suggest you talk to a Financial Planner about whether a transition to retirement income stream is suitable to your needs. You are able to continue working and contributing concessionally to super whilst drawing concessionally taxed income from your fund.

This gets even better if you are over 60 and still working as you are taking money out tax-free and putting it back in again and claiming a tax dediction on it as well.

Hope the Government keeps this up long enough for you to benefit from that one as well !!!

Super, and especially SMSF, should be a very important part of anyone's financial plan these days.

Cheers,

Rob

Hi PTHM,

Actually in allocated pension/age based pension/drawdown phase all the earnings in a complying fund are tax free (whether the recipient is 55, 65 or 75).

It is only the payments that are received which are deemed taxable (while a recipient is under age 60) at the end of each financial year, once a recipient is age 60 or over the income is classified as Non-Assessable Non-Exempt (or NANE) which does not add to a recipient's taxable income.

Cheers,

Dan

PS Before making a superannuation decision speak to your FPA registered Financial Planner. For Self Managed Superannuation Funds speak to your SMSF specialist before making a decision.

Thank you, Rob, for some very helpful pointers. Appreciated it.

Thanks, Dan, for the clarification. Agree with what you said about the difference in tax free for fund earnings, and taxable pension for fund members.

We have worked out broadly the pension which hubby should take from smsf so not to negate the tax advantages from him being able to contribute part of his salary to smsf (under the transition to retirement rules). We're kind of understanding the principles, but need to know the nitty gritty of the mechanics. We cannot find any written resources pointing to how this should be done - the practical aspects etc.

I still think the ATO is the first step for procedural advice.

At the very minimum, you will need to pass minutes to allow payments of Account Based Income Streams and Non-Commutable Transition To Retirement Income Streams as per the SIS regulations.

If your deed is more than a few years old, it may have old and illegal clauses which cause great consternation to Taxation Lawyers and might be worth getting checked. However, if the fund was initially comlying it is debatable whether these clauses void the whole deed or whether SIS just ignores it provided the Trustee abides by current law.

Better get it checked to be safe rather than sorry ... especially if Governments change and attitudes harden.

Also, you should expect to hear suggestions like the following - which is by no means exhaustive:

1) Member writes to Trustee requesting commencement of an income stream, payment methods, frequency etc.

2) Trustee acknowledges request.

3) Minutes made and benefits calculated based on amounts in the fund, age of member, whether commutable.

4) If concessional contributions are still to be made, separate accounts must be kept since the accumulation fund will still pay tax on concessional contributions & earnings.

5) Trustee registers with ATO for withholding tax from benefit payments.

NB: You mention that you funds are mostly shares, so make sure any shares sold to pay benefits are realised after the account becomes tax exempt to avoid CGT.

Make sure your binding death benefit nominations are updated.

I won't write any more as it will start turning into financial advice which is not an area I work in.

I also recommend joining a SMSF self-help group in your area.

Taxpayers Australia also have a SMSF group.

Cheers,

Rob

Thanks again, Rob, for your suggestions - all very helpful and valid. We will do more research - hubby said he has no intention of rushing into the pension, before we really understand the ins and outs well. Much appreciated the time you have taken to reply!

Dear PHM

When you take a TRIP from a smsf - you get money from your pension account - this money is not tax free if you are under 60 - however you get 15% rebate if it comes from taxable source - if it comes from your own money (tax free - old name un-deducted) it is tax free to you.

NO matter how you look at it - you must go on a TRIP as soon as you turn 55 years - you will save tax.

Update your trust deed and convert your accumlation account to pension phase = doing it yourself at a website can be easy - try it

Thanks, manoj, for your reply. I notice you are a "newbie". Welcome to the forum!

A few weeks ago I attended a smsf seminar organised by the Australian Shareholders Association, and one of the speakers gave me a checklist for starting a pension from smsf. So, I am working on those at the moment - particularly updating the trust deed.

Dear Pthm

The reason why i was interested in your thread was because i work as a technical director to TRUSTDEED.COM.AU Deeds you can trust and by chance whilst researching on installment warrants i ended up on this wesbsite and enrolled myself to this forum.

I have over 19 years exp in SMSF as an accountant > adviser > now as an auditor. Mostly, i develop strategies and consult to other accountants and speak at various accounting bodies CPD monthly meetings on Super and pensions. Take it from me - the best time to go on TRIP is on your 55th birthday - For me 59 years, since i was born after 1960.

On our website TRUSTDEED.COM.AU Deeds you can trust i have written many newsletters on TRIP - you can click on "previous newsletters" and read them and currently writing a newsletter on this issue. As it can be quite confusing for someone like you. Please register your self to this free newsletter service.

I am speaking on this issue in Brisbane on 9th Dec - read the seminar tab on the website. If you need to speak to me - you know how to contact me! We live in a small world.