Q: My wife and I are both 71 and we’ve delayed starting a pension in our self-managed super fund to try and make our super last longer. But we now need to start a pension as the cost of living is just crazy now. We wish to start a pension. Do we have to wait until July 2024 or can we start one now? How do we tell the minimum? Is it still based on our 30 June 2023 balance?
A: As you and your wife are over 65, you can start your pension whenever you like. You don’t need to start a pension on 1 July of the year. You can start it when it best suits you. That could be today. You could decide, “Hey, let’s start our pensions today”.
What we would do is we would go to our trust deed, if it’s an SMSF or we’d go to our super fund and ask what their processes are that are required in order for a pension to start. Once you’ve done all those things necessary, such as the pension application document, the trustee minutes, once you’ve done everything which is required and it’s signed off, that could be the start date. Let’s say it could be today.
It’s your age on the date that the pension starts to determine what your minimum percentage is, and then you pro-rata that payment based on the number of days left in the financial year. All very wordy, probably better off if we go through an example. Chris has sent an application to start a pension on 1 January 2024. The SMSF trustees agreed to start paying it on 1 January 2024. That’s therefore the start date of Chris’s pension.
We get his pension balance on that date, and I’ve just said it’s a $1,000,000. The minimum pension percentage, which is required for a 71-year-old, is 5%. So, Chris’s minimum pension is $50,000. But it’s starting on 1 January 2024, so we need to pro-rata it based on days. Now, if we do a calculation of 1 January to 30th of June, it’s about 181 days. 181 divided by 365 is 49.5%. Therefore, the minimum pension that Chris has to take is the 49.5% of the $50,000 being $24,750. Now I always round up here to be safe just to make sure that I do meet the minimum. Please don’t use my calculations here. It could be different in leap years. It could be different on start days, but it’s pretty easy to work out how many days are left in the year. That is what we’re doing. We’re pro-rating that minimum pension payment.
So, you can start a pension on any day of the year that you like. Follow the process required by your fund, and then do your calculations. Importantly, then make sure you meet those minimum pension payments.
Some pretty good resources available on our website such as How to start a pension, the checklist, and our Starting account-based pension webinar. All of those resources are available for you on the website.
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