Understanding how people aged 67 to 75 can top up their self-managed super funds

Q: A while ago, the federal government passed legislation allowing superannuation funds held by people aged 67 to 75 to put money into their superannuation funds, without having to satisfy the work test.

When I contacted my Self Managed Super Fund (SMSF) accountant, she advised that because my fund was in the pension phase, she would have to open a new accumulation phase account in my SMSF. Any additional payments needed to be put into the new fund, not my existing pension account. 

Is this what the government has intended should happen when people like me wish to top up our SMSFs? I am 72 years of age and my SMSF is well under the $1.9 million limit.

You and your accountant are correct in the process required to increase the amount held in a retirement phase account within super.

It is now possible to add money to super without satisfying the work test up to the age of 75. This is done by making non-concessional contributions to your fund.

The annual limit is $110,000 but you can also make use of the bring-forward rules which allow you to pay in up to three years worth, or a single $330,000 contribution.

In essence and because you can’t add money to an existing Account Based Pension (ABP), the ABP needs to be temporarily converted back into accumulation phase, this amount is then combined with the newly contributed amount and then a new ABP commenced with the new increased balance.

This normally occurs within the same SMSF and does not require a new fund to be established. You simply open and close the accumulation account within your existing fund. However, there are still some other conditions that will need to be met.

If the total account for a member in the fund is approaching or close to the current Transfer Super Balance (TSB) limit of $1.9 Million, that member may be restricted on how much can be contributed.

For a member with more than $1.68 Million for example, the limit is $220,000 and if more than $1.79 Million, only a single payment of $110,000 can be made. These cap limits don’t apply to someone making use of the super down-sizer rules.

Note that the $1.9 Million limit is a member balance and not the total fund balance. If you are partnered, you can each use the same trick.

As for the accountant fees being charged?

Your accountant is charging you for the time spent in documenting the conversion back to accumulation phase called a commutation, then accounting for the additional contribution and then possibly, the conversion back to retirement phase.

This highlights the need to consider the total fees charged with any superannuation arrangement, including SMSFs. If you were using a low-cost public offer scheme for example, the conversion back-and-forward between accumulation and retirement phase and the additional contributions would all be included in the normal fees charged by your fund and not an extra amount.

In my view, there are very limited times when an SMSF arrangement is more cost effective and better, than a low-cost public offer arrangement.

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IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.