QuoteReplyTopic: Super Strategy Posted: 13/July/2012 at 13:40
Hi All,
I'm interested in views on the following strategy for someone about to retire but not in need of using their super for a year or two (because of other savings).
In order to take advantage of the tax free income of a superannuation pension account the proposal is to move 80% of the current accumulation fund to a pension invested in fixed interest and cash. There would only be one pension payment each June. The remaining 20% in the accumulation fund would be invested in growth assets (e.g. shares and property). When the pension payment is received each June it would be paid back into the accumulation fund as an undeducted contribution.
Obviously I'm not asking for specific financial advice, just interested if anyone can see any major flaws in this approach ?
Lack of diversification for one. However another avenue to look at is deferring taking the OAP - apparently (a few years ago) you could put off taking it and take it as a lump sum later.
Not legal advice. Personal opinion only. Seek legal advice from qualified personnel only.
Thanks for the response -
The lack of diversification I can live with as the pension amount is the only portion invested in fixed interest and cash. The remainder (in the accumulation fund) is invested in growth assets so with this and other property assets I have I think there is reasonable diversification.
In so far as deferring the pension - wouldn't this option mean leaving it in the accumulation fund and missing out on the tax free benefits of pension phase ?
Whether you are even eligible to an Age pension when you get to that age depends on your total assets, excluding your family home.
Also the pension deferral scheme mentioned by AOD is no longer available for new applicants.
I am no authority on super investment options, others will advise, but don't forget about using your superannuation account to purchase an allocated pension.
I am NOT a lawyer. Anything said is NOT legal advice.
Please post your legal questions in a forum rather than sending a PM. Thanks.
Yep, the presumption was to purchase an allocated pension and I was interested in views on the strategy of having it in invested in cash / fixed interest with the remaining 20% left in accumulation phase invested in growth assets. My calculations indicate that the pension would last at least 20 yrs so there would be ample time for the growth assets to ride out the inevitable market fluctuations and return a profit.
I've had the chance to run this by a couple of financial planners now and the only change they both recommended was to put all the funds into the pension (to take advantage of the tax free income) rather than keeping 20% in accumulation.
If I was to follow their advice I would still need a super accumulation account though as I think for at least a couple of years I would have surplus pension money that I would like to re-invest back into super (you cannot add to a pension account).
Again others who work in this area will advise but in my case I did something similar and took the financial planners advice and rolled almost all my super into a balanced fund as an allocated pension. I kept a small amount in the super fund so as to maintain an account into which I paid the superannuation from my pre-retirement job plus some lump sum after tax money from the sale of some assets. Once I retired I moved all the super into another allocated pension.
Edited by MartinO - 17/July/2012 at 21:57
I am NOT a lawyer. Anything said is NOT legal advice.
Please post your legal questions in a forum rather than sending a PM. Thanks.
Thanks MartinO - I'm looking at a similar approach. However, in looking at some of the published figures for my fund (First State) it appears to me that any growth assets (shares, property, etc) which are subject to volatile results may be better off in accumulation.
For the fund's 5 yr averages the results returned by these type of assets in pension funds did not exceed the addition fees charged for a pension fund when compared to an accumulation fund.
As an example the Balanced fund average 5 yr return was 1.6% for accumulation and 2% for pension, but the additional fees for pension amounted to .52% per year.
This is why I'm looking at having my pension fund invested in cash / fixed interest but any surplus funds in accumulation in growth assets. Hopefully by the time I'll need to use the growth assets they will have ridden out any downturns and be showing a profit.
Obviously, you need to see a financial advisor but I want to point out one thing which could be an issue for you, depending on your age.
There is no problem putting the pension payments back to superannuation. However, if you're 65 or over, you'll need to meet the work test each year which requires you to work at least 40 hours in a period not more than 30 days. You can put personal contributions to super until 75.
As I am not a financial advisor, I cannot comment on the strategy itself.
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