What retirees can do now that term deposits are generating tax bills

The trustee would formally record your request and its agreement in minutes, and your fund accountant would need to lodge a report with the Australian Taxation Office notifying it that your new pension has started together with the value of this pension.

This pension value would then be credited to your transfer balance and the ATO would determine whether the balance is within, or exceeds, your transfer balance cap.

Your transfer balance cap is a limit on how much you can transfer into “retirement phase” pensions, with account-based pensions the most common type of retirement phase pension.

Your cap will be somewhere between $1.6 million and $1.9 million, with the precise amount depending on several factors, including when you started your existing account-based pension and its original value.

If you did the above, says Mansell, you’d have two account-based pensions being paid to you from your SMSF. Each would have to pay you the minimum withdrawal rate for your age. For someone who is between the ages of 65 to 74, this is 5 per cent of the account balance of your existing pension and 5 per cent of your second pension, calculated proportionally from its start date to the end of the 2023-24 financial year.

So if you started your second pension with $330,000 on January 1 next year – midway during the 2023-24 financial year – you would be paid $8200 as a minimum income amount for the 2023-24 financial year.

This is calculated by applying the relevant percentage factor (5 per cent) based on your age (69) by your pension account balance when you started the pension ($330,000), calculated on a pro rata basis if the pension commenced part way through the financial year (the pension would be in place for 182 days out of 366 days in the 2023-24 financial year).

If the minimum payment is not made by June 30, this can result in adverse taxation consequences for the fund.

If you fail to meet the minimum pension payment requirements for your pension, the ATO will treat you as not having paid a super income stream from the start of that income year. This will see investment earnings on assets that support the pension taxed at 15 per cent rather than being exempt from tax.

A second option

If you only wished to have a single account-based pension, says Mansell, you could stop your existing $1 million pension, transfer your remaining pension balance to your accumulation account where it will be combined with your contributions, and then commence a new account-based pension with the combined amount in your accumulation account.

Before stopping your existing pension, though, you would need to make sure you withdrew the minimum required pension payment, being the normal minimum for 2023-24 pro rata to reflect the number of days the pension is in place before you stop it.

Once again, this would be a simple matter of you (as the member) formally asking the trustee to stop your existing account-based pension and then requesting a new pension be started with the amount in your accumulation account.

This would have comprised the remaining balance of your existing pension that you transferred to your accumulation account plus the contributions you made.

Once again, the trustee would record your request and its agreement in minutes, and your fund accountant would lodge a report with the ATO, notifying it that your existing pension has stopped, and a new pension has started, together with the relevant value of each pension when it stops and starts.

The value of your existing pension when it stops, says Mansell, would be debited from your transfer balance and the value of the new pension would be credited to your transfer balance, with the ATO determining whether or not it was within your transfer balance cap.