Question 1 

Hi Craig, If my super fund with a 60 per cent taxable component is converted totally into pension mode, will this pension fund also have 60 per cent taxable component?

And, heaven forbid, if I die soon after and my adult child inherits my pension super, will he then have to pay tax on the 60 per cent portion?

Hello, that is correct.

If your accumulation account is currently 60 per cent taxable and 40 per cent tax-free, the same split will generally apply when you start a pension with those funds.

There are a few important points to keep in mind.

While your super is in accumulation phase, investment earnings are added to the taxable component, so the taxable percentage may increase over time unless you make after-tax, non-concessional contributions.

Once the funds move into pension phase, the taxable and tax-free proportions are fixed and generally do not change.

From age 60, pension payments and lump sum withdrawals you receive are generally tax-free.

However, if you die and your remaining super is paid to a non-tax dependant, such as a financially independent adult child, the taxable component is taxed at 15 per cent plus Medicare levy.

There are strategies that may help manage this issue, which I wrote about recently.

Question 2

Hi Craig, you have talked about rolling back an existing pension to add further accumulation funds.

How does this get taken into account regarding the limit on what can be put into pension mode, which I believe is $2 million? Is it re-counted towards the total?

Under current rules, you cannot directly add funds to an existing pension account.

If you have other super in an accumulation account and want to start a pension with those funds, you generally have two options: Start a second pension, or roll your existing pension back into accumulation, combine the funds and start a new pension.

Your $2 million reference relates to the transfer balance cap, which limits how much super can be moved into the pension phase.

For 2026-27, the general transfer balance cap is $2.1 million. Anyone who has never started a pension can use the full general cap.

If you have already started a pension, you will have a personal transfer balance cap instead, because you are entitled only to part of any indexation increase.

The transfer balance account records lump sum withdrawals and pension rollovers as debits.

Pension income payments, investment earnings and investment losses are not recorded as debits or credits.

So, if you rolled $1 million back to accumulation, this would be a debit against your transfer balance account.

If you then started a new pension of $1.2 million, this would be a credit, leaving a net increase of $200,000.

This is a simplified example and the rules can become more complex depending on your circumstances.

You can check your current personal transfer balance account through MyGov.

Keep in mind that super funds generally have 10 business days after the end of the month in which a transfer balance account event occurs to report it to the ATO.

SMSFs usually have longer reporting timeframes.

Speak to your super fund or financial adviser to assist with these transactions.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.