Pension drawdown rules extended

The Federal Government has confirmed that the 50% reduction in minimum annual pension payments, first announced in February 2009, will be extended to the 2009-10 financial year.

The reduction applies to account-based, allocated and market-linked (term allocated) pensions and annuities.

Pension Bonus Scheme scrapped

The Pension Bonus Scheme will be closed to new entrants from 20 September 2009. There will be no change to existing members of the scheme, and they will continue to accrue entitlements under the current rules.

To compensate for the closure, the Government will introduce a new pension income test concession for people of Age Pension age. The concession will mean that only 50% of the first $500 of employment income per fortnight will be counted for income test purposes. This concession equates to a maximum increase in Age Pension entitlement of $3,250 per annum (single or couple combined).

Those nearing retirement will therefore need to determine whether the pension bonus or the concession is more beneficial to them. This may depend on the number of years a person intends to stay in employment, the number of years they have already accrued and the percentage of Pension Bonus to which they will be entitled.

For example, the maximum bonus payable after two accrued years for a single person is $5,570.40 (as at 20 March 2009), whereas the maximum concession value for 2 years of Age Pension is $6,500. But after three accrued years, the maximum bonus is $12,533.30 and the maximum concession is only $9,750. If the person will not be entitled to the full bonus, the income test concession may become more favourable.
 

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Is self-managed super right for you?

Self-managed super funds offer their members a range of important benefits.

1. Control over your investments

Research suggests that this is the number one attraction of SMSFs for most trustees/members. They like to have responsibility for their own financial affairs and would rather do their own investing, even if they made mistakes, rather than paying a professional do the work.

2. Greater flexibility

SMSFs certainly give members greater flexibility in managing their super. This applies at all stages in the management process, not just investing. There are also estate planning, investment and tax strategies that are either much easier or are only possible with a self-managed fund.

3. Possible cost savings

The poor performance and high fees charged by many managed superannuation products is another motivating force. With most retail funds charging around 2% per annum in management fees, it does not require a very high balance before the numbers start to favour the SMSF option.

4. Tax effectiveness

While this is seen as a bonus rather than a major motivation for most SMSF investors, it can still be very important when disposing of assets or planning the payment of member benefits.

But their are also some responsibilities and challenges which need to be considered.