Should I start drawing on my super if the markets are down?

Is it better to start a pension when the market is down or up? I am 69 and pretty much retired. Currently, my super is split between pension and accumulation. I’m intending to shift what’s left in accumulation into pension, but am likely to be over the transfer balance cap.

From the perspective of getting the best transfer balance cap outcome, it would be helpful if the value of your portfolio was lower.

Starting to tap into your super during heavy market fluctuations can feel like a bad move.Credit: Simon Letch

Given you have used a portion of your transfer balance cap already, it is important that you have clarity on how much room you have left. The current relevant cap is $1.9 million, however, this is to be increased to $2 million from July 1.

The previous money you’ve put into pension phase will have used a certain percentage of your cap based on the year that the pension was commenced. As an example, if you commenced your pension when the cap was $1.6 million, and put $800,000 in, then you will have used 50 per cent of your cap.

That would mean that if you held off until July, you would have up to $1 million that could go into pension phase, being 50 per cent of the $2 million cap.

Trying to time things around market ups and downs is difficult because no one knows what the future holds. Currently, your portfolio value might be less than it was a month or two ago, but it’s almost certainly more than it was a year ago.

So when measuring whether it’s up or down – compared to what? However, delaying until there is a known increase in cap would seem to me to be a reasonable strategy.

I understand proceeds from a home sale are tax-free, but are there any nuances I’m missing if it’s contributed to super as after tax non-concessional contributions? My wife and I recently retired. We have owned the house for eight years and so are outside the downsizing super contribution criteria. If we were to have $500,000 residual cash from the downsize, and seek to put this is into our super as after-tax contributions using the bring-forward rule, would we be taxed?

Thanks for flagging the limitation on the downsizer superannuation contribution provisions. To have access to this, you need to have owned the home for at least 10 years. I’ve found in the past that this is an eligibility requirement that can easily be overlooked.

The standard after-tax superannuation contribution limit is $120,000 a year, with the potential to make three years worth of contributions in a single year via the bring-forward rules.

Between you and your wife, there should certainly be the scope for you to get those residual funds into superannuation, assuming you haven’t already used the bring-forward provisions in the past few years, and that your balances are under $1.6 million each.

Note that you need to be under 75 years of age in the financial year that you make the contribution to be eligible to make after-tax (non-concessional) contributions. Assuming you then convert your super savings into a pension, all earnings and drawings will be tax-free.

Is there any benefit to having your super in an industry fund that is associated with the industry you work in, e.g. health, construction, etc?

Investment-wise, I wouldn’t have thought so. However, there may be differences in the default insurances, which aim to reflect the needs of a particular industry.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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