Q. I am 61 and will continue working for a few more years.  I have around $500,000 in 2 Transition to Retirement (TTR) Allocated Pension accounts, one with a taxable component of 91% and the other one is 70%.

I have $250,000 in 4 accumulation accounts. One of these accounts I salary sacrifice $35,000  plus non-concessional contributions of around $30,000 a year. The taxable component of this account so far is around 60% and the balance is $130,000. The other accounts have $120,000 of personal after tax contributions in total.

 I am planning to combine these four accounts and start another pension once the balance gets to $300,000.

 Should I have 3 separate TTR or would it be more beneficial, to roll over all 6 accounts and have just one new TTR?

The reason I have spread the super around different fund managers is to avoid the risk of investing with just one fund.

If I roll everything over to start a new account, what will be the effect on the tax-free and taxable splits?

 

A. A Super fund is broken into taxable and tax free components.  A tax free component usually arises from a personal after tax contribution to Super.  A taxable component arises from Employer, Salary Sacrifice , Personal Deductible Contributions and the growth in your Superannuation fund.

You refer to the tax components of your Super as percentages.  The tax free component of your superannuation fund is a fixed amount.  If you merge funds, the fixed Tax free amounts of the various funds are added together.

The tax components become an issue on your death if proceeds are payable to non-dependent beneficiaries.  If you nominate your Spouse or a dependent beneficiary to receive the benefits, confusingly Taxable and Tax free components are all tax free! If the beneficiary is non-tax dependent then tax is payable at 15% on the taxable component only.

One of the key benefits of a Transition to Retirement Strategy is to get as much as possible into the Allocated Pension environment. When you are over 60, earnings inside the  Allocated Pension and income drawn from the fund is tax free.  Given you are making substantial contributions to Super pre and post tax, regular refreshing of you Allocated Pension would make sense.

It is very important to differentiate between spreading your funds around a number of fund managers and having a number of different Superannuation funds.  You are usually far better off consolidating all your funds into the one structure so you benefit from discounts on fees and one Trustee.  Whilst you will only have the one Trustee, considering Public Offer funds are regulated by APRA, if you choose a large well respected Trustee the likely risk to your funds of Trustee default is extremely low.

Diversification of funds by Asset Class and Fund manager is important.  Ensure you have a clear understanding of your tolerance for risk and what an appropriate asset allocation would be for your risk profile.  You can diversify fund managers by asset class; you choose specialist managers who are expert in a specific asset class.  Or you can have Fund managers do this on your behalf. This is called a MultiManager approach where a manager selects a subset of invest managers and they allocate assets in accordance with their view of the economy and the markets conscious of your appetite for risk.

Review the aggregate costs of your current situation arrangement and compare them to using one structure.  The cost differential is your insurance premium to have multiple trustees. My preference is to invest under one structure to reduce costs but diversify across a range of managers as no one managers gets it right all the time nor are they expert in all asset classes.

 

Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.