Pensions. Should you start one now?

We met with a SMSF client last week to discuss whether he should start a pension as at 1 July 2006. The meeting was part of the year end accounts process and the trustees resolved to start the pension last July, buy have only been able to document this decision now. He has $1.2m in the fund, 0.8m of which is undeducted contributions. The fund pays about $12,000 a year tax. He is 58 and stopped work as a teacher a few years ago.

The bottom line is the pension should start as at 1 july 2006, and this will save $12,000 year tax, as the SMSF's income will be tax free from that date. There will be a little bit of tax in his hands for this year. But not much, due to the pension being largely composed of tax free un-deducted contributions.

Overall a great strategy. If you think you should be starting a pension now, ie you are over 55, you should make an appointment now to discuss your SMSF's tax profile and whether this strategy suits you.