1. Webinar:Strategies for Pensions & Estate
PlanningPresented by AARON DUNN The SMSF Academy The SMSF Academy
2012
2. Housekeeping Attendees are muted for the session
Presentation slides available in underMaterials box Also contained
within session login link You can type questions to thepresenter(s)
from your screen Webinar recording to be uploadedinto the SMSF
Academy MemberResource Library Will also be available to purchase
recording and transcript This session will be issued with SPAA&
FPA CPD points once assessed
3. SMSF members will choose one of two models when reaching
draw down phase: S.K.I Build a SMSF Model Pension Plan
4. http://www.spendingyourkidsinheritance.com
5. Taking minimum benefits from super up to a males life
expectancy from age 60will leave the highest balance with a SMSF
when their reach their life expectancyMale 60 yearsLife Expectancy
of25.9 yearsMinimumpension reachesequivalent levelto Funds RoR @say
7%Structuring Income Streamsbecomes very important
6. Strategies for Pensions & Estate PlanningOpportunities
with preservationcomponents
7. Impact on UNP with Transition to Retirement Proportioning
rule states that tax-free & taxable componentsmust be taken in
proportion to each other Accumulation: Based on component before
lump sum benefit paid Pension: Proportion determined at
commencement of income stream SIS or Tax Law does not impose any
proportioning topreservation components Can separate unrestricted
non-preserved benefits from preserved and restricted benefits Why?
Priority of cashing benefits Allocation of fund earnings
8. Impact on UNP with Transition to Retirement Case Study Greg
(55) has $700,000 account balance within SMSF Components include
preserved $500,000, unrestricted$200,000 Target pension income of
$60,000 p.a. (CPI, 3%) Access to capital is important to Greg How
do we best structure the pension(s) for Greg? Do we commence one or
more pensions? Two pensions will allow for Account Based Pension to
becommenced with unrestricted non-preserved benefits
9. Impact on UNP with Transition to Retirement$300,000 $800,000
$700,000$250,000 $600,000$200,000 $500,000$150,000 $400,000$100,000
$300,000 $50,000 $200,000 $-$100,000 5556 5758 59 60Single TRISTRIS
& ABP Balance Within 4 years, single pension has totally eroded
unrestricted benefits Additional $243,331 of unrestricted benefits
available after five (5) years byrunning separate income stream
(ABP)
10. Strategies for Pensions & Estate PlanningMulti-pension
strategies
11. Maximising benefit payments Maximise benefit of locking in
the tax-free and taxablecomponents Why is this important? 1.
Greater tax efficiency for pensions under 60 years of age 2. Estate
planning benefits Create multi-pensions where undertaking
recontributions Ability to elect which interest to draw benefits
from Use them to advantage in a downward investment market Full
commutation and absorb decrease in taxable component
12. Benefit of a multi-pension strategy Case Study Ted (60) has
recently retired $1,000,000 balance in SMSF ($200,000 TFC) Requires
$60,000 pension p.a. (CPI 3%) Fund earnings at 6% p.a. Undertakes
recontribution strategy of $450,000 TC = $360,000 + TFC = $90,000
Should Ted commence one or more pensions?
13. Benefit of a multi-pension strategyOne pension
Multi-pensions Original components include Original components
include20% TFC 20% TFC Post recontribution includes Recontribution
creates a new56% TFC (44% TC)super interest (ABP#2) with100% TFC
All earnings and benefits taken ABP#1 commences withmust be applied
in proportionrecontribution (20% TFC)to when the income stream All
earnings and benefits to becommenced applied proportionately i.e.
56% TFC / 44% TC Choice of above minimum pension amounts After 10
years - $394,673 of After 10 years - $248,089 oftaxable
componenttaxable component
14. Benefit of a multi-pension strategyChange in Tax-Free
Component$650,000.00$600,000.00$550,000.00$500,000.00$450,000.00$400,000.00$350,000.00$300,000.001
2 34 5 6 7 8 9 10Single pension Multi-pension $113,636 improvement
in the tax-free component byrunning a multi-pension strategy (6%
net earnings)
15. Benefit of a multi-pension strategy What impact does the
fund earning rate have?Strategy Benefit based on fund earning
rate$140,000.00$120,000.00$100,000.00 $80,000.00 $60,000.00
$40,000.00 $20,000.00$-3% 4%5% 6% 7% 8% Strategy Benefit
Multi-pensions can play a key role with market volatility
16. Strategies for Pensions & Estate PlanningPensions with
volatile investmentmarkets
17. Capitalising on market volatility Investment markets can
fluctuated over past five (5) years dueto Global Financial Crisis
(GFC) SMSF pension plan will allow member to benefit
fromopportunities in both downward and upward investmentmarkets
Requires active management to provide greater tax efficiencyor
longer-term estate planning benefits
18. Benefiting from a poor investment marketExample Arthur
drawing an Account Based Pensionwith an account balance of
$1,000,000 at30 June 2011 Includes 50% Tax-Free proportion Poor
share market performance showsportfolio decreased to $800,000
dropped 20% in 2 months Do nothing = benefits reduceproportionately
from commencement ofincome stream $400k TFC / $400k TC Is there an
alternative solution forArthur?
19. Benefiting from a poor investment market Full commutation
at 30 June 2011 = $500,000 TFC / $300k TC NB. Not 1 July otherwise,
pro-rata minimum (1/365th) pension required to be withdrawn
Commence new income stream from 1 September 2011 62.5% tax-free
proportion Result = 12.5% improvement in tax-free component Under
age 60: reduced Arthurs taxable income 60 years & over:
improved tax on lump sum death benefit when paid to non-dependant
Opportunity Cost = 2/12ths tax exemption for financial year @ 4%
Fund income = $6,667 share of income x 15% = $1,000 tax
20. Investment Segregation Ability to segregate specific assets
within an SMSF to amember or pool of members Pension Pool /
Accumulation Pool / Reserve Pool Class of Membership Why segregate?
Tax exemption / tax deduction (e.g. LRBAs) Members have different
risk tolerances Accelerate the tax-free proportion of an income
stream Improve the tax effectiveness of a TRIS (under 60) ATOs
views (NTLG Super Technical Group March 2010) ATO typically expects
total segregation of an asset not half a property or part of a bank
account ATO to provide more information on topic, including new ATO
publication on pensions in July 2012
21. Using segregation or member pools forinvestment succession
Ella (55) has $420,000 and wishes to start a TRIS on 1 July 2009
Includes $20k TFC She has the ability to make in-specie share
transfer of $330,000 as NCCcontribution Combine or setup two
pensions (multi-pensions)? If setup two pensions: Can elect to
segregate to each pension account Can assign aggressive assets
(i.e. shares) to TFC pension ($330k) Share market rebounds 30%;
overall fund portfolio increases 15% TRIS #1 = $420,000 x 1.032*
(growth) - $42,000 (pension) = $391,500 TRIS #2 = $330,000 x 1.30
(growth) - $33,000 (pension) = $396,000 Increased balance and tax
efficiency of TRIS #2 as 100% tax-free Not assessable even
through