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Beware segregated pension traps

Applying the segregated pension method for an SMSF can result in cash-flow issues caused by the division of earnings and expenses.

While the decision to segregate assets in an SMSF into pension and accumulation mode may be due to tax purposes, there are still a range of important issues to consider.

Bank accounts are usually the biggest issue with segregating an SMSF into pension and accumulation pools. If an SMSF trustee has one account, they must be able to keep track of everything since every dollar earned from every asset will go into that one bank account. However, two separate bank accounts can also be problematic. Having two accounts can make it hard to determine how you direct the right income to the right bank account.

Since dividends are paid to bank accounts, SMSF trustees may also have to provide the share registry with two accounts. This means two different broking accounts are required for shares from the same company.

Posted on 9 August '15 by , under Super.

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What to consider when consolidating your super

The ATO reported that 45% of working Australians were not aware that they had multiple super accounts in 2016. Having multiple super accounts is particularly common for individuals who have had more than one job. If this is you, it is important to identify and manage your super accounts because having more than one can be costly as a result of account fees from multiple funds.To combat this, you may want to consolidate your super, which moves all your super into one account. Not only does this save on fees, but it also makes your super easier to manage and keep track of.

Before consolidating your super, it is important to do the following:

Research your funds' policy
Compare your active super accounts so you can make the right choice about which one you should close. Things to assess include:

  • Exit fees
  • Insurance policies
  • Investment options
  • Ongoing service fees
  • Performance of the funds

Check employer contributions
Changing funds may affect how much your employer contributes, as some employers contribute more to certain funds. Check your current accounts to see if changing funds will affect this. Once you have selected a super fund, regardless of whether you choose a new super fund or one of your existing ones, provide your employer with the details they need to pay super into your selected account.

Gather the relevant information
When consolidating your super, you will need to have the following details ready:

  • Your tax file number.
  • Proof of identity. This could include your driver's license, birth certificate or passport.
  • Your fund's superannuation product identification number (SPIN).
  • Your fund's unique superannuation identifier (USI).
  • Details of your previous fund.

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