How do I withdraw my Super as a Pension

1. What is a Pension
2. When & How Much can I withdraw or add to a Pension (AP)
3. Can I inspecie transfer property as a pension & Can I withdraw a Lump Sum from my Pension or Stop it
4. What is the Tax on my Lump Sum/Pension/TRIS Withdrawal
5. Pension Paper Work
6. How do I pay myself the Pension
7. What is the a pension cap

Having determined the components of the super balance, preserved, taxable/non taxable, etc, the amount of the super account, and the strategies to withdraw, you then have the information you will need to complete the documentation to withdraw as a LUMP SUM or TRIS or PENSION:

What is a Pension

A Pension is a continual cash withdrawal, otherwise know as a income stream. Prior to 1.7.07 the two common forms of pensions were Allocated Pensions (“AP’s”) and Complying pensions. On 1.7.07 new Superannuation reforms were introduced to increase the incentives for retirement savings and withdrawals of super funds in the form of pensions. These new pensions are called Account Based Pensions (“ABP’s”)

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When & How Much can I withdraw or add to a Pension (AP)

A Pension can start a pension from 60 when retired, as opposed to a TRIS that can start from the <preservation age-see rates table> which can be less than 60. Note that the definition for retirement is different for a person who is 60 and a person less than 60. A person 60 or greater needs only cease employment after 60 and retire see <meaning of retirement>. A person who has not retired must be 65 or older to start a pension, see <conditions of release table>.

A Trustee cannot receive any additions to a Pension, only withdrawals can be made. Additions can only be made to an Accumulation Interest.
The amount that can be withdrawn will depend on whether your pension is a AP (Allocated Pension) or a ABP (Acocunt Based Pension).

Currently there may be Pensions that were created under the previous rules, pensions known as AP’s, as opposed the current ABP’s. These older AP’s have higher minimum drawdowns than the current ABP’s. The previous percentage factors for the AP’s can be found by <clicking here> to demonstrate. A AP can be converted to a ABP to take advantage of these differences if required, to see how to convert <click here>. A Trustee is restricted to paying a minimum and maximum amount per year. The minimum and maximum amount is determined by the formula in reg 1.06(9A) and Schedule 7 as follows;

Note Due to the GFC and stimulus measures the minimum pension has been reduced by half so for the 2010 and 2011 years the formulae has changed to:

Minimum Payment = Account balance at 1 July x minimum percentage factor x 50%.

There is NO Maximum Payment, unlike a TRIS that does have a maximum.

Where the Pension has started then instead of using the balance at 1.7, use the account balance amount at the start of the Pension. The Minimum is pro-rated if it commences during the year so that the % factor amount as calculated is reduced based on the number of days of the pension.

Warning – If the minimum annual pension requirement is not met, the member was 60 or more the payment under a Pension will be treated as a LUMP SUM benefit and will generally be Tax Free. Also there are special Minimum Payment rules in the year where a ABP is commuted (rolled back to a Accumulation interest) under Reg1.07D.
There is no restriction on the number of payments made from the Pension, provided the total of the payments meets the minimum and maximum amounts allowed by the above formulae.

Can I Withdraw a Lump Sum from my Pension or Stop it

Pension payments must be made in cash, therefore a in specie property transfer will be treated as a lump sum withdrawal not a pension payment.

In Specie asset transfers will be treated as a sale, therefore CGT applies.

A Pension can be withdrawn as a LUMP SUM as a commuted LUMP SUM payment, as opposed to a TRIS and the former AP that existed prior to 1.7.07. A AP can be converted to a ABP if desired.
A Pension can however be stopped. It can be ‘rolled back’ into an accumulation account if the member is working.

Strategy Tip – This may be done to create tax free and taxable interests before recommencing a pension such as using a re-contribution strategy, for example. Hoever note that there are special Minimum Payment rules in the year where a ABP is commuted (rolled back to a Accumulation Interest)under Reg1.07D. For more info on what the ATO says in regards to stopping and re-starting a pension see <ATO-Link>.

Strategy Tip – Further, given that when a Pension is cashed, the first components to be cased are UNPB’s, therefore if a client wishes to preserve these amounts, a strategy of only using half the Accumulation interest to start a Pension and not selecting the UNBP component to be included in the Pension will enable the UNBP to be preserved in the Accumulation Interest. [Source ATO NTLG Superannuation Technical Subgroup minutes 16.06.09.] Accordingly ‘cherry picking’ is allowed to start a Pension, but cherry picking is not allowed to withdraw from a TRIS, see the proportioning rule.

What is the Tax on my Lump Sum/Pension/TRIS Withdrawal

No tax is generally payable as a Pension (not a TRIS) cannot commence to 60 and over and payments are generally tax free, not exempt and not assessable, s301-10, (except if the pension is funded partly from an untaxed element).
For the Taxable amounts, Tax free amounts and tax Rates click here.

Pension Paper Work

To withdraw your super as a PENSION you / the trustee first needs to determine the components of the super balance, preserved, taxable/non taxable, etc, the amount of the super account, and the strategies to withdraw, you then have the information you will need to complete the documentation to withdraw as a LUMP SUM or PENSION/TRIS or both as follows:
The Paper work needed to pay the PENSION is as follows:

• a letter from the member to the trustee requesting a lump sum pre payment statement
• Trustee obtain and review the trust Deed to ensure nothing prevents you paying a Pension.
• The trustee complete a ATO re payment statement – part A of the ATO statement (not compulsory but best practice) which details the components of the super benefit and affords the member to seek advice re the treatment of the payment.Trustee can also send a letter advising & requesting info from the member to assist the member making the Pension request, details such as:
  

  Advice

  1. the member’s minimum pension amount based on the entire account balance
  2. the member’s maximum pension amount based on the entire account balance
  3. that in-specie payments cannot be made from a pension, only cash payments
  4. any other details not shown on Part A of the ATO statement.

  Request Info from the member by way of a letter:

  1. that the member wishes to be paid a Pension
  2. Proof member has met a condition of release, age, (Proof of identity details), or letter from employer confirming employment has ceased.
  3. The expected commencement date
  4. how they wish to commence the Pension, eg out of all or part of the accumulation account, if so what components will comprise, eg UNPB, RNPB, PB.
  5. whether the member wishes to nominate one or more reversionary beneficiary’s and their respective percentages.
  6. whether the member wishes to nominate a BDBN (if not already in place) if it is confirmation that the member wishes to continue with the BDBN.
• The member return ATO pre payment statement- Part B (which includes among other things their TFN) OR, a letter or both. The letter would contain such details as requested of the member by the trustee as disclosed above.
• The Trustee must also issue a PDS to the member. A PDS includes details such as Pension features, benefits & risks, determination of pension payment methodology, tax, fees and charges.
• Trustee Minutes prepared and signed – detailing all details of the pension, such as:
  1. the commencement date of the Pension,
  2. Account balance amount used to fund the Pension
  3. Taxable component and Tax Free Component
  4. Components being used to commence the Pension eg UNPB, RNPB, PB.
  5. minimum pension amount by 30 June __ of $____
  6. maximum pension amount by 30 June __ of $____
  7. Amount of the pension payment $____ and frequency ___ of payments, if stated
  8. Method used to determine the maximum and minimum amounts.
  9. Specify whether segregated or unsegregated assets are being used to fund the pension.
  10. Trustee to comply with regulatory lodgement, payment, record keeping requirements.
• Trustee can write to the member detailing the details of the pension as mentioned in the trustee minutes. However this is not necessary where the member is a trustee as signing the minutes to start the pension is effective notification by the trustee to the member.
• TFN Declaration signed by member
• ATO details, Forms, Lodgments:
  1. PAYG Withholding registration – if PAYG is required to be deducted (see tax requirements)
  2. PAYG pension payment summary – within 14 days of the end of the financial year.
  3. PAYG withholding annual report – as disclosed in the PAYG pension payment summary.
  4. PAYG payment summary superannuation (income stream) – not required unless there is a untaxed element which can arise if insurance proceeds are used to fund a pension.
• Accounting entries recorded to reflect the Pension payments.

Rollover payment notification form – if the member wishes to roll the amount into another fund, then this ATO form be prepared.
These ATO forms provide in detail the pre requisites for the form to be completed and advise alternate form names and Nat numbers for other options. The forms should be simpler to complete for payments to persons 60 and over as there is generally no tax payable.

How do I pay myself the Pension

Here’s what the ATO has the say about ABP’s <ATO-Link>.

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What is the Pension Cap

The pension cap is proposed to be $1,600,000 as at 1 July 2017 and indexed to inflation in $100,000 increments, as outline below with the introduction of the transfer cap.

$1.6M ceiling –the proportionate approach must be used in determining the tax free pension for inflation. Under a fractional indexation system, for people who do not transfer the full $1.6m into a super pension in the first instance, the percentage of the limit they have not used will be indexed to CPI. The cap will rise in increments of $100,000. If a retiree transfered $1.2million into a pension account in July next year, when the rules are due to be enforced, they will retain the right to contribute another $400,000, or 25% of the $1.6million, at some future date. If by the time they contribute a second tranche the limit has increased to $1.7Million, they will be able to contribute $400,000 plus 25% of the $100,000 incremental rise. Conversely a retiree who injects the full $1.6million will have used up 100% of their pension transfer cap. The requirement to track these incremental unused caps will require the need for an Accountant/Financial Adviser to assist clients with tracking these unused transfer caps so as not to breach the caps.