Question 1. My super is with Aware/VicSuper, and I started a pension with VicSuper Ethical with an inheritance of $1,312,788 straight after my 60th birthday in July 2019. At the same time I also started an accumulation fund with them using $25K income tax deduction, the balance of the pension fund is now $1,438,000 after deducting income of 4 per cent, 2 per cent, 2 per cent in the past three years.

When am I allowed to contribute more to reach my TBC of $1.7 million? One adviser said I have to wait until after my birthday in July 2022 and another said I could contribute the amount straight away but use the amount accumulation fund first ($49K+ $200K), then close it.

When you started a pension the general transfer balance cap was $1,600,000. The general transfer balance cap has now been indexed to $1,700,000 (i.e. indexed by $100,000).

However, what is now relevant is your personal transfer balance cap.

This is the general transfer balance cap when you started plus a proportion of the indexation.

As you used 82.05 per cent of the general transfer balance cap (i.e. $1,600,000/$1,312,788) you only get to use 17.95 per cent of the future indexation, which equates to $17,950 (i.e. $100,000 x 17.95 per cent).

Therefore, your personal transfer balance cap should be $1,617,950 ($1,600,000 + $17,950), and as you have used $1,312,788, you can then start an additional pension of $305,162.

While this can be done at any time, there are some mechanics on how you do it – i.e. funds have to come from super first and you may want to start one combined pension rather than having two.

Also note that you may have other transactions affecting your personal transfer balance cap that I am not aware of, and I strongly recommend you logging in and checking your personal transfer balance cap via MyGov. I also suggest you seek personalised advice.

2. To avoid excess drawdown from a pension account, is it cost effective to leave some of the super in accumulation? Up to 15 per cent of tax on earnings may be attractive, over investing outside super.

When you commence a superannuation pension, you are required to draw down a percentage of your balance each year, and this increases in brackets as you get older.

However, over the past few years the required drawdown has been halved, as can be seen in the table below:

Of course, that doesn’t mean you need to spend the money, just draw it out of your superannuation pension account.

If you do not need the funds, then as you have indicated, you have two main choices:

1. Let the funds build up in your bank account, and then reinvest them into either super, noting that you can make after tax (non-concessional) contributions to up until the age of 75 with a work test no longer required. Or you could invest the funds into shares, managed funds, term deposits or any other investment of your choice
2. Retain some funds in the accumulation account of your super, i.e. don’t convert all the funds to a pension.

If you invest the surplus funds outside of super, then any earnings will be taxed at your marginal tax rate.

Remembering that all your super pension is paid tax free, its only other income that may be taxable. Therefore, most seniors don’t pay income tax unless they have over $25,000 in taxable income.

Alternatively, if you are generating substantial interest, dividends and other investment income, then keeping some money in super means not having to record the earnings in your tax return but the fund will pay up to 15 per cent earnings tax on all its income, less any offsets the fund has.

So, it comes down to your overall tax position and what investments you are holding.

3. I am currently living and working overseas. At what age (i.e. 60?) can I access my super to be able to transfer it to an overseas retirement fund?

Whether you are living in Australia or overseas, the same rules are in place as to when you can access your super.

A condition of release is met in any of the below circumstances:

• Attaining age 65 (whether will working or not)
• Attaining age 60 and terminating an employment agreement (i.e. stop work or change jobs)
• Attaining your preservation age and declaring yourself retired (for anyone born after July 1, 1964 their preservation age is 60).

If you are 60 or over, funds can then be withdrawn tax free and transferred to wherever you like.

Alternatively, you can set up an Australian superannuation pension (retirement income stream) with the funds and have payments made to an overseas account. Again, from an Australian perspective, the money would be paid tax free.

However, you should obtain tax advice in the jurisdiction where you will be retiring because they may in fact tax the funds coming into your account from Australia.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

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