Mark Gleeson, senior technical manager for MLC, said on a recent webinar that those choices are either taking a disability lump sum first and then commencing a pension, or taking a disability pension first and then a partial lump sum from the disability pension – a partial computation from the disability pension.
“There are pros and cons for both,” he said.
“Looking at the scenario where we take the lump sum first you have a lower credit against your transfer balance cap, which means that when it comes to future indexation you have higher future indexation on the transfer balance cap as well and that’s a positive. You have a smaller minimum pension payment because you are starting it with a smaller balance.”
Gleeson said that may not matter overall because you may already be taking significant pension payments, which some might discredit one as a pro or a con.
“From a disadvantage perspective, you are cashing out investments in accumulation phase to be able to take that lump sum withdrawal and now need to deal with capital gains tax, or when it comes to a master trust, you are not going to have us as much as a super to pension bonus transfer when you go from accumulation to pension fund,” he said.
“So remember, with a master trust, that super to pension transfer bonus, the master trust provisions for some of that unrealised tax in your unit price is reflected in your exit price and a lot of funds nowadays, when you go to your pension fund, give you a bit of a kicker, it’s some return of some tax that’s provisioned for, and it goes back into your pension fund and becomes part of that purchase price of your pension.”
He continued that the alternative of taking the disability pension first and then doing the partial lump sum from the disability pension works out better from a tax perspective.
“This is because from the perspective on disposing of assets in the pension fund, rather than the accumulation fund, from the master trust perspective, you might get a higher super-to-pension transfer bonus,” he said.
“But again, remember, if you are taking a large pension payment out pretty quickly, and taking a lump sum withdrawal out quickly, it’s best to be careful with a super-to-pension transfer bonus if there are any claw back provisions.”
He added if there are clawback provisions they could potentially impact the client.
“The cons of taking that disability pension and then doing the withdrawal is that you have a greater transfer balance cap credit and it is going to impact your future transfer balance cap indexation,” he said.
