Q&A: What can we do with excess funds if we need less than the minimum pension amount?

There are a lot of people out there who might be now receiving more money, more income than they have in the past or they need. Now, conversely, I know a lot of people who need more than the minimum as the cost of living has gone through the roof.

But anyway, I’ve got no magic solution for you here, but what I have got are some things you could consider but probably just reiterating what you’ve said. For instance, we could take the pension payments as we’re required by law, the minimum percentage amount out, we could take that and then we could recontribute amounts back in, obviously into the accumulation account where earnings will be including the fund’s taxable income and we pay around 15% tax.

But we could get some tax planning advice there around investing in, for instance, dividend paying shares or frank dividend paying shares, and we could offset maybe some of that tax payable by some of those tax credits. Simply doing what you’re doing, taking the money, recontributing excess back into the fund with some tax planning around it.

Or we could do the same thing but contribute it back into our spouse’s accumulation account. Gives us the same outcomes, but we might then be getting some estate planning outcomes as well.

We could reduce the pension balance essentially by rolling back part of your pension balance back to accumulation, which reduces the minimum pension required to be taken out. But it does give the exact same outcomes as above. We’ve now still got money in the accumulation phase where we’ll be paying tax on those earnings.

Or of course, we could just invest those proceeds outside of the superannuation environment. We could invest them in our own names or in our spouses’ names. Now, don’t forget, with tax offsets and the tax-free threshold, you can get around $21,000 to $22,000 per annum per individual in income tax-free per annum. You could essentially get around $21,000 to $22,000 in income tax-free.

Now, if you invested that and got, for 5% return, that represents what? About the $500,000 capital amount. For a couple, you could be having around a million invested at 5% where you’d be paying very little to any tax.

You need to take that into consideration. You could consider other investment vehicles like trust or companies, or as I said, you could keep it simple, depending on the capital involved. Having around that amount invested with those tax-free thresholds and low income and the rebates and things like that, there’s around, as I said, it’s around $22,000 per annum where you could get tax-free anyway. I don’t have any magic solutions for you there, Chris, unfortunately. They are just some of the things that you could consider doing.