Question 1

Hi Craig,

Thank you for your informative columns, which I enjoy reading every week.

I am 74 years old and fortunate to have $1.4 million in a pension account with AustralianSuper. I draw down the compulsory 5 per cent, which is more than adequate for my living expenses.

I have recently sold an investment property and, again, I am lucky to have made a profit of $360,000.

I would like your advice on what I should do with these funds.

Thanks for your comments.

For most people, superannuation is the best place for retirement savings and for building wealth. The tax settings are very generous.

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Given your age, there is a small window of opportunity to contribute those funds into superannuation.

You can still make voluntary superannuation contributions up until age 75 – technically, they can still be made to the period up to 28 days after the end of the month in which you turn 75.

For example, let’s say you turn 75 in May, contributions would be accepted until June 28.

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If you are under 75 at the end of the financial year, you may also be eligible to use the bring-forward rule, where you can contribute more into super depending on your total balance. See the below table.

As you have less than $1.76 million, you should be able to contribute the entire $360,000.

Once the funds are in super, you then have three choices:

• Leave them sitting in the accumulation account. Under this option there is no requirement to draw down on funds. However, tax on internal earnings will be up to 15 per cent.
• Start a new pension with the $360,000. All earnings and payments will be tax free. You will then have the slight hassle of having two pension accounts.
• Roll back your existing pension into your super with the $360,000. Then start a new pension with the combined super balance. While this does take a couple of steps, over the long run it will be easier to manage.

Question 2 

Hi Craig

When I retired last year, I cancelled my income protection insurance and have kept total permanent disability and death cover.

After reading the product disclosure statement on this cover, I am not sure that I and my family will be able to make a claim on the TPD as it covers for being able to work, which is not relevant now I’m retired.

Due to the ongoing cost, I’m thinking I should cancel the cover and just keep the death cover?

You may still be able to make a claim on TPD even if retired and/or not working. TPD is based on you being unable to work in a job again, not whether you are currently working.

However, your eligibility for a TPD benefit payment will be assessed differently if you haven’t had a job for 12-18 months (depending on policy) or more.

TPD normally stops at about age 65 and becomes quite expensive as you get into your 50s and 60s. Of course, that is because that is the age group that make most of the claims.

I suggest contacting your provider and getting a specific response on this. You should also weigh up the costs of premiums you are paying versus any payout.

Question 3 

My father is 80 and receives the full age pension and a small monthly pension from Colonial First State. To minimise fees, can he transfer the CFS pension to an industry super fund pension?

An account-based pension, which I assume is what your dad has with CFS, can be transferred (or technically called “rolled over”) to any other providers of account-based pensions.

Apart from low fees, other criteria to look for would be strong long-term net (after fees) returns. Plus good customer service, whether that is a good website/login portal or it is easy to contact via phone if preferred.

Making the switch should be fairly simple. If your dad has his ATO details connected with his MyGov, then it’s just a couple of clicks.

Otherwise, the fund you want to use going forward can assist in the paperwork.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.