The beginning of a new financial year is a peak time of the year for beginning a superannuation pension by members of large funds and self-managed funds.
Given the waves of baby boomers now entering or nearing retirement, there is little doubt that the number of superannuation pensions beginning in 2016-17 will reach a new annual high.
Actuaries Rice Warner estimates that 250,000 fund members with some $35 billion in super benefits will retire in 2016 alone. And more than 80 per cent of the value of these savings are likely to be invested in superannuation pensions, based on the 2013-14 experience.
Many SMSF trustees that are beginning or about to begin paying a super pension will decide to take specialist self-managed super advice for the particular circumstances of their funds and their members.
For instance, one impact of the ageing of the population is that SMSFs will increasingly have at least one member in the accumulation or savings phase and at least another member in the pension phase.
And more SMSFs will inevitably have at least one member who is in both the accumulation and pension phases, receiving a transition-to-retirement pension while continuing to contribute.
Pension-paying SMSFs need to accurately calculate their tax-exempt pension income, to manage assets on a segregated or unsegregated basis (distinguishing between tax-exempt and non-tax exempt assets), and to pay the minimum annual pensions required to retain concessional tax treatment.
Undoubtedly, pension-paying super funds face some different challenges than experienced in the accumulation phase. These include the technical issues involved with paying an SMSF pension and the setting of appropriate investment/asset allocation strategies for retired members (in SMSFs or large APRA-regulated funds).
It is likely that a higher proportion of super fund members will take specialist advice when making that critical shift from accumulation phase to the pension-paying stage (which could last up to 30 years or so).
By Robin Bowerman
Principal & Head of Retail, Vanguard Investments Australia
10 July 2016