If you don't withdraw the correct income stream you'll be deemed to be in accumulation phase, writes Sam Henderson who answers your questions on super.

Q: My present pension account is roughly double my new effective transfer balance cap after July 1, taking into account my defined-benefit pension of about $50,000 a year. Assuming that I have to use unsegregated (proportionate?) accounting, this leaves around $800,000 in both pension and accumulation phases. Am I able, after July 1, to withdraw lump sums from just the accumulation account, leaving the pension account intact or will a future lump sum be paid equally from both accounts? If the latter, I presume that I need to withdraw the money before June 30. My query is simply based on my desire to use the new, relatively limited, pension account for just paying pensions. Russell

A: Russell, after July 1, 2017, you are correct in assuming that you will have both a pension account and accumulation account. Your $50,000 defined benefit pension will be worth 16 x $50,000 or $800,000 as a lump sum assessed against your pension transfer balance account of $1.6 million. The remaining difference between $800,000 and your $1.6 million transfer balance cap will be in pension phase.

You've suggested that you exceed your transfer balance cap by around $800,000 thus $800,000 will be deemed to reside in accumulation phase and be subject to 15 per cent earnings tax and 10 per cent or 15 per cent capital gains tax (depending on whether you owned the asset for  longer than 12 months).

The $800,000 sitting in the account-based pension phase of the account will need to have a minimum pension drawn against it to ensure it remains to be deemed in pension phase. Therefore if you're over 56 and under 65, this amount is 4 per cent of $800,000 or $32,000 a year, 5 per cent is $40,000 etc depending upon your age. If you do not withdraw your minimum pension, you will be deemed to be in accumulation phase and will thus attract the "accumulation phase" rate of tax.

So long as you take the minimum from the pension phase account, you'll be OK. Withdrawals beyond that should (and can) be taken from the accumulation phase. This exhausts the funds in the less tax-effective accumulation phase faster, keeping your pension phase intact (less the minimum pension payments).

I am finding that many clients want to take lump sums for renovations, motor vehicles, holidays or to help the kids, and I'd encourage those withdrawals beyond the minimum pensions to be taken from the accumulation phase account.

Q: Being permitted to put excess funds from downsizing the family home into superannuation would move those funds from an exempt asset for age pension purposes into an accountable asset, wouldn't it? Yvonne

A: Yvonne, you're quite right. In a previous article, I discussed the pros and cons of the downsizing provisions we heard about in May's federal budget. While we know the overview, we do not know the detail as it hasn't passed through Parliament, or even been introduced as a parliamentary bill.

We do know that you will need to be over 65, you may contribute up to $300,000 each into a super fund ($600,000 for a couple) from the sale of your principal residence and that the contribution will not be age-tested (people over 75 will be able to contribute). We also know that the additional amounts will not count towards the $1.6 million pension balance transfer cap.

That said, it has also been suggested that if you make a contribution to super using these downsizing provisions that it will count towards the assets test and be deemed for Centrelink purposes. I suppose we will know the detail when the legislation is introduced and subsequently receives royal  assent. But in the meantime, I think we can safely say that some careful planning around this will be paramount before its suggested introduction from July 1, 2018.

Q: As a 52-year-old lady with no super, I have bought about 1200 shares in the BetaShares Australian Dividend Harvester Fund  and they pay an income every month of about $240. Instead of taking the income, I am reinvesting until I turn 65. Then in the future I will draw an income. What do you think about this strategy and how will it affect me getting an old age pension in the future? I own no assets, only the family home. De

A: De,  this is indeed an intriguing product and one that I use for my clients in combination with a diversified portfolio of conservative assets including cash, fixed, interest, Aussie shares, International shares and property. Like all products and investments, it's important to understand the attributes of the asset. If you look at the long-term return, it appears to be negative and therefore many investors are sceptical.

As you rightly point out, the trick is reinvesting the dividends and maximising the franking credits and thus in an account-based pension that pays no tax, you actually get the franking credits paid back to you when you do your tax return. Therefore this maximises your returns and optimises your tax position. But please make sure you diversify your investments and seek advice if you're not sure of something.

These answers must be taken as general advice only. Financial planner Sam Henderson is CEO of Henderson Maxwell. Published questions will win a free copy of Sam's book The One Page Financial Plan (Wrightbooks, RRP $29.95) – please include your mailing address. Email: superquestions@fairfaxmedia.com.au