5 Self-Managed Super Funds Questions and Answers

Self-Managed Super Funds are a great way to build up a nest egg for you to live on later in life as part of your retirement. Once you have retired, you can choose to receive a pension from your SMSF. Here are 5 questions regarding SMSF Pensions:

  1. What are the different types of Pensions?

There are a couple of different types of pensions available. The main 2 types of pensions include Account Based Pensions, and Allocated Pensions. Each of these types of pension gives you different benefits. With an Account Based Pension, you can access different levels of income from your fund based on your age, as well as take out lump sums from your account with no limitations. When it comes to a Allocated Pensions, you are limited to a certain maximum amount of money or payments that you can receive within a year’s timeframe. Due to this, you have to budget prior to the beginning of the year what your estimated budget will be and then make sure that the figure you need from your SMSF is in line with your maximum amount available.

  1. Who is a reversionary beneficiary, and who can qualify?

A reversionary beneficiary is someone who is selected either at the beginning of the pension, or once the fund is already created, to receive the funds should the main member pass away. The member can choose who they want to be the beneficiary under the following guidelines: the person needs to be dependent upon the member. They would need to be the spouse or child of the member, someone who was financially dependent on the member, or someone who was living with the member in an “interdependent relationship”.As far as the term reversionary, it refers to thetax or social security benefits that will be reverted to the selected beneficiary based on the particular agreement of the member’s Self-Managed Superannuation Fund.

  1. What kind of contributions can I make into a Pension account?

When it comes to making contributions into the actual Pension account that has been established, you technically can’t make contributions directly. What this means is that instead of going straight into the same account where your pension is being taken out of, your contributions will go into a separate account where they will accumulate as part of your overall SMSF fund.

  1. How are Pension accounts taxed?

When looking at how your pension account will be taxed, it is very simple. The portion which was tax free will stay tax free, and the portion which was taxable will be taxed. The taxed portion will have a varying percentage based upon the member’s age who is receiving the pension. For example, from preservation age to age 59, there is a 15% tax. From age 60 and above, however, there is no tax that is applicable. In other words, should you be willing to wait until you are 60 to start receiving your pension, you won’t have any tax issues to worry about.

  1. What is involved with the administration of a Pension account?

In order to commence and maintain a Pension account, several things are needed. These include, among other things, an application, an agreement and a disclosure statement for the pension product that you will be commencing, as well as annual pension payment calculations once you start receiving the funds. This will ensure that you get the money that was agreed to as well as help you stay within the guidelines for your particular SMSF.

In conclusion, having a pension under your Self-Managed Superannuation Fund can be a wonderful but confusing way to handle your retirement. With the right resources and tools, however, it becomes easy to understand and a benefit instead of a burden in your every day life.