SMSF members who are looking to commence a pension before preservation age should do so as soon as they can to ensure they are not penalised by the rules governing the transfer balance account report (TBAR), a strategy expert has said.
According to I Love SMSF founder Grant Abbott, it means starting a pension when the applicable member reaches the age of 60.
“If you want to start a pension and your benefits are unpreserved, then age 60 is when it must be started because at that time, depending where the market is, that is going to be your lowest TBAR balance,” Abbott said at his most recent strategy seminar.
To illustrate his point he used an example where the monies with which a member wanted to commence a pension grew from $700,000 to $800,000 over the year the individual progressed from age 60 to age 61.
“If her balance at age 60 was $700,000, by waiting, deferring taking the pension, after that extra year she has now wasted $100,000 of her TBAR,” Abbott noted.
“Whereas if she’d started her pension at age 60, any gains from market performance will be taken off [for TBAR purposes].”
He reminded practitioners for an individual to commence a pension at age 60 they needed to cease an arrangement of gainful employment and to this end suggested they employ techniques that would help them remember the age of their clients.
To this end he suggested the implementation of a notification mechanism when the client reaches the age of 59 years and six months so all preparation for the establishment of a pension can be made, including the cessation of a term of gainful employment.