Opinion
Can we put our rental income back into super?
Paul Benson
Money contributorMy wife and I are both 65 and will retire next year. We have an investment property with a small mortgage remaining. When we retire we’d like to take a lump sum out of super to clear this debt. Will we be able to then put money back into super (via the rent) given our age and being retired?
You can contribute to superannuation until age 75. At retirement your superannuation savings would likely be converted into a pension to produce regular income. Note that pension accounts cannot accept further contributions.
A super top-up using rental income is possible.Credit: Simon Letch
This being the case, it would be important for you to leave a small balance in an accumulation account where you could make your intended future contributions.
I’d be interested to test whether it is necessary for you to put this rent back into super. Once retired, income is what you need.
I have two super funds, an old defined benefit fund and a Unisuper account in accumulation phase. I currently receive $22,000 pa (indexed) from my defined benefit fund. Having recently retired, I plan to start drawing an income from Unisuper. As I am 63, I have to take a pension of 4 per cent per annum. How does the income of $22,000 affect or interact with the 4 per cent rule? And how are these assessed against the $1.9 million maximum that can go into a pension?
Let’s take the easy one first. The $22,000 payable from your defined benefits pension does not impact the minimum drawing requirement on your Unisuper account. These are assessed entirely independently. Provided you draw the minimum required (4 per cent at your current age) from Unisuper, you will be fine here.
As for the transfer balance cap of $1.9 million, defined benefit pensions are typically valued at 16 times their annual payment (note, this differs for unfunded taxable schemes). A $22,000 income stream would, therefore, have a value of $352,000 for the purposes of the transfer balance cap.
This means you could shift up to $1.548 million within your Unisuper account into a tax-free account-based pension. At the minimum 4 per cent drawing rate this would produce income for you of almost $62,000, bringing your total annual income to $84,000 from superannuation.
If your Unisuper balance is greater than $1.548 million, you can either leave the surplus in the fund or withdraw the proceeds. If you leave it in the fund, tax will be levied at 15 per cent on income and 10 per cent on capital gains.
If you were to withdraw the funds, the tax would depend on your personal position. Keep in mind that you can earn at least $18,200 before paying any tax. When making the decision on what to do with any excess funds, it’s also worth considering how you would invest the money if it is withdrawn from super.
If, upon withdrawal, you would simply sit the money in cash, it may well be that your long-term outcome is lesser than if you had left the funds in Unisuper and paid a small amount of tax.
Finally, it’s worth noting that your position of having a lifetime defined benefit pension and an account-based pension is fantastic.
The defined benefit pension provides you with a risk-free, inflation-protected income source for as long as you live, while your account-based pension provides flexibility to adjust the level of income you need and make lump sum withdrawals whilst also leaving something behind for your beneficiaries at the end.
Paul Benson is a Certified Financial Planner at Guidance Financial Services. He produces the weekly email GainingCHOICE. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
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