Ian teeters on a pension decision

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Chartered accountant and financial planner GAIL FREEMAN helps navigate people through the Public Sector Superannuation Scheme pension. This is a sponsored post.


Ian had just discovered that he could access his Public Sector Superannuation Scheme pension, but was unsure whether to or not.

Gail Freeman.

Wracked with indecision, he came to see me.

“Let’s have a look at everything and then we can work out the best options for you,” I told him.

“You have a deferred pension in PSS that will provide a pension of $20,000 a year. You have just passed preservation age and you are 58.

“You also have about $200,000 in PSS which is a post-1995 transfer amount. This cannot be converted to a pension and must be compulsorily preserved.

“I also understand that you and your partner run a restaurant in partnership and that you also own some investment properties jointly.”

“And there’s the issue: when you are 58, in order to draw a lump sum, you need to satisfy a condition of release, which is that you have permanently retired from the workforce and do not intend to work again.

“Permanently retired means that you are gainfully employed for less than 10 hours a week ongoing. The fact that you are a working partner in the restaurant precludes you taking this lump sum or any part of it at the moment.”

Ian said that, if it made any difference, the partnership was thinking of selling the restaurant and retiring from the industry.

I said that yes, it would, after age 60.

In looking at the tax side, I told Ian there were three components to his superannuation: tax free, taxable taxed and taxable untaxed.

“In the case of your pension, $500 is a tax-free component,” I said. “There is a taxable taxed component of $2000. This is taxed at your marginal rate, currently 34.5 per cent including Medicare levy less 15 per cent tax offset until you reach the age of 60 when it is not subject to tax.

“There is also a $17,500 taxable untaxed component. This will also be taxed at 34.5 per cent, but when you reach 60 you will also get a 10 per cent tax offset.

“So before 60 your fortnightly pension will be about $770 gross with tax of around $250. Over 60, the tax will reduce to about $165. So you will be $85 better off.”

I then explained to Ian the preservation rules.

“All superannuation is preserved until you reach 65 unless you retire earlier,” I said.

“We have looked at the situation when you retire under age 60. If you sell the restaurant between 60 and 65 and you are working for less than 10 hours per week then you have retired and you can draw on the compulsorily preserved lump sum or turn it into a pension.

“Before you start drawing the PSS pension you have to roll over the lump sum into another fund. You have another suitable fund, so the lump sum can be rolled over into that fund.”

“Your superannuation fund balances are not close to the maxima so you can put $25,000 as a tax deduction into your superannuation fund every year until you are age 65.

“You can also put in $100,000 a year and possibly three years in one go, but we need to discuss this further. You should start to draw the PSS pension as soon as you can.”

Ian left, questions answered, and off to fill in his PSS forms.

If you have questions about retirement and superannuation contact the friendly team at Gail Freeman & Co Pty Ltd on 6295 2844, email info@gailfreeman.com.au or visit gailfreeman.com.au



This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser.

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