# Super, in the pension phase, some thought on structure?



## onthesword (3 March 2016)

Having very recently retired I am now accessing my super as a pension and was thinking about ways to structure it.
It's an industry fund (not into smsf) and offers the typical balanced, growth, cash etc options, can invest in a max of two with income derived from one to be taken fortnightly, monthly,quarterly, half yearly or yearly with a min of 5% of fund value.
Fund is not huge so basically will need most of the income to live on, unfortunately no govt pension top up.
Looking for some thoughts re balancing income. For instance how would taking the 5% as cash in lump then investing it in a bank or something paying a known rate  of interest compare to leaving all in the (single) fund and drawing fortnightly and disregard any volatility ? 
Just looking for food for thought rather than specifics.

many thanks


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## Bill M (3 March 2016)

Hi onthesword, last year I went onto pension phase with my super.

I am with ING Living Super and I have more choice than what you have. By that I mean I can have it anywhere I like and spread it out as wide as I like.

To answer your question, I would keep a couple of years of cash in the cash fund and use that for your pension payments. Then I would invest the rest in a fund mix that you are comfortable with, be it conservative, balanced, high growth etc.

The reason I say keep some in cash is because when the market dips hard (like now 20% down), the last thing you want to be doing is drawing on your share fund (whichever one it may be). You do not really want to be selling shares at market lows to pay your pension.

This is the reason I keep a cash buffer. I can ride out 2 years of market turbulence if I need to. 

With my wife's super we also go one step further, we re balance every 6 Months or so. We did a re balance 2 weeks ago as the ratio was out, we ended up buying more shares at the recent lows.

Lets say you keep 10% in cash and 90% in balanced. If shares take a big hit and your allocation moves to 15% cash and 85% shares then I would re balance and then I purchase shares at much lower prices. Lets say it goes the other way and your shares go to 95% and your cash to 5%, then I would sell some shares and put some in cash to get the ratio back to the 90%/10% levels. You are reaping rewards of share growth and topping up your cash.

You need to have cash to keep paying those pension payments. I can not stress this enough, it goes quickly and you need to be sure you are not selling shares at low prices just so your Super can pay your pension.

It works for my wife and I. Everybody is different, you need to know what you are comfortable with for the long term.

Good luck and all the best.

Retirement is great.

Bill


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## sinner (3 March 2016)

First of all it is important to state that people on ASF cannot give financial advice. Please take what you read with that in mind!

I would add this article is worth having a read of:

http://gestaltu.com/2012/03/retirements-volatility-bogeyman.html/


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## onthesword (3 March 2016)

appreciate your input guys. 

Bill, you clearly are more active in this area than I want to be, having been quite active with the fund before retirement and got some great dumb luck returns it's something I don't want to spend too much time with ( rather spend my time on other pursuits  but you have given me something to consider .

Sinner, definitely not after any advice just general considerations, that was an excellent article bit of an eye opener with regard to volatility which for most of us retirees  has to be a major consideration, thanks.


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## poverty (3 March 2016)

Bill do the pension payments automatically come out of your cash holdings or do you set that as a preference?


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## Bill M (3 March 2016)

You have to set it as a preference, cheers.


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## onthesword (3 March 2016)

Bill
Given your super is an a quite a potentially active fund with ING just wondering what sort of Admin fees and ICR you pay ?


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## Bill M (3 March 2016)

I chose ING Living Super because their fees are low and I can allocate my capital in any way I see fit.

For cash, term deposits and their balanced fund there are no admin fees. There is a small spread on the buy and sell for the balanced fund.

Then they have the ASX 300 option where you can choose your own stocks, ETF's and LIC's. You do not need to subscribe to this option but I do as I like to pick my own. This option charges you $25 per month or $300 per year.

With the ASX 300 option I mostly invest in ETF's. The ETF's charge an MER of between .20% to .35% . Then there is the brokerage buy and sell fee as well.

Some people might say that those fees can add up but it is cheaper than buying into their "Select Category" With the Select Category the fees are as follows:

---
Select category: Create your own investment strategy by choosing from a range of managed investments.
Administration fee 0.50% p.a. of the Select category account balance, capped at $1,000 p.a.
Investment fee 0.25% p.a. of the Select category account balance
Buy/sell spread Estimated to be between 0.06% - 0.31% when buying or selling units

http://www.ingdirect.com.au/superannuation/living-super.html
---

By clicking on that link and expanding the tabs, more detailed info is available.

So for me, I am up for $300 per year, plus the ETF MER plus brokerage . It is cheaper to run than my wife's Industry Super Fund and far cheaper than a SMSF. ING Living Super do all the tax reporting, capital gains, audits and everything else. It's not a bad deal for me and it's the best Super Fund I have ever had, cheers.


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## So_Cynical (4 March 2016)

Bill M said:


> You have to set it as a preference, cheers.




Excellent, was going to ask you about all this, i may have to cash out my Aussiesuper for ING, pretty sure aussiesuper make you sell up your shares option and force you into one or more of the normal options when in pension phase.


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## Bill M (4 March 2016)

So_Cynical said:


> Excellent, was going to ask you about all this, i may have to cash out my Aussiesuper for ING, pretty sure aussiesuper make you sell up your shares option and force you into one or more of the normal options when in pension phase.




To be exact about this, there is the "Cash Hub" with ING. The cash hub is like a transaction account. Everything that comes in and goes out happens with the cash hub. This cash hub has rules. You need to have a minimum of $500 in there or 1% of your account. The maximum that you are required to have in there is $10,000. So you need to have in there between $500 and $10,000 depending on the size of your account. The Cash Hub only pays interest of 1.55%. This is not too bad considering it is a transaction account. If pension payments are required it will come from the cash hub.

Then there is the proper "Cash Option", this pays 2.75%. I usually transfer surplus cash out of the cash hub into the cash option.

Then there is the term deposits, for 6 Months, 1 year and 2 years which are paying 3.1% interest.

All of the cash options do not have any fees. This is all with ING Living Super.

With my wife's Industry Super Fund we have an allocation to their cash fund, (current interest rate 1.8%) and all of her pension payments come straight out of that. You can re balance as often as you like with that fund too, cheers.


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## Junior (4 March 2016)

I would be wary of the Living Super Balanced option.  The way they can offer it with a 0% MER, is that 50% of the fund is invested in ING Cash....so only half of your money is actually invested.  This compares with other Balanced options where you typically have 70% in Growth assets and another 20% or so in Bonds/Fixed Interest.

If you have funds in a cash account to fund pension payments in addition to the ING Balanced option, you'll end up with less than half of your account actually chasing a return above cash rates.  If you are a conservative investor you might not take issue with this.

I would look at the performance history of the ING Balanced option and compare that with other Balanced or Conservative funds, it will likely be worthwhile paying some fees as a higher return will more than pay the MER.


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## Bill M (4 March 2016)

Junior said:


> I would be wary of the Living Super Balanced option.  The way they can offer it with a 0% MER, is that 50% of the fund is invested in ING Cash....so only half of your money is actually invested.  This compares with other Balanced options where you typically have 70% in Growth assets and another 20% or so in Bonds/Fixed Interest.
> 
> If you have funds in a cash account to fund pension payments in addition to the ING Balanced option, you'll end up with less than half of your account actually chasing a return above cash rates.  If you are a conservative investor you might not take issue with this.
> 
> I would look at the performance history of the ING Balanced option and compare that with other Balanced or Conservative funds, it will likely be worthwhile paying some fees as a higher return will more than pay the MER.




Yes, everything you say is correct and worth noting. 

I do not put anything in the balanced option because of what you have mentioned. For someone like me though, (who picks and chooses his own stocks) it is an extremely cost effective fund. I have a good mix of Bonds and Shares and the cash I have is parked in Term Deposits without fees.

A key point to note is this: Most of the cash options in regular super funds are offering around 1.8% for the cash fund (My wife's Industry Super fund paid 1.8% for the last 12 Months for the cash option). With ING Living Super, cash in Term Deposits are just like term deposits outside of super and they are earning 3.1% at present. Why would anyone pay fees for a cash option with any other super fund and receive less?

It is not for everyone, but for me I do not want the hassle of running a SMSF and with ING Living Super I'm virtually having a SMSF without the hassles.


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## Junior (4 March 2016)

Bill M said:


> Yes, everything you say is correct and worth noting.
> 
> I do not put anything in the balanced option because of what you have mentioned. For someone like me though, (who picks and chooses his own stocks) it is an extremely cost effective fund. I have a good mix of Bonds and Shares and the cash I have is parked in Term Deposits without fees.
> 
> ...




It's a great product overall and I'm a big fan of ING, I just think the Balanced option will mislead a few people as it's quite different from other Balanced funds out there.

3.1% is a great rate in the current environment, and with no earnings tax in pension phase.


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## So_Cynical (27 April 2016)

So_Cynical said:


> Excellent, was going to ask you about all this, i may have to cash out my Aussiesuper for ING, pretty sure aussiesuper make you sell up your shares option and force you into one or more of the normal options when in pension phase.




Looked into this and found out that even though Asuper have a transaction account (cash hub) like ING the morons don't give members the option of drawing a pension from the cash account, instead they give you only 1 option and that's to draw it from the other (norml) investment options, balanced, fixed interest etc.

Asuper members can keep their share portfolios (members direct) but all dividends etc go into the normal investment options, every month or whatever units are sold and pension paid from that...pretty stupid but thats Australiansuper for ya.

https://www.australiansuper.com/~/media/files/pds/choice income product disclosure statement.ashx


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## GG999 (9 December 2016)

So_Cynical said:


> Looked into this and found out that even though Asuper have a transaction account (cash hub) like ING the morons don't give members the option of drawing a pension from the cash account, instead they give you only 1 option and that's to draw it from the other (norml) investment options, balanced, fixed interest etc.
> 
> Asuper members can keep their share portfolios (members direct) but all dividends etc go into the normal investment options, every month or whatever units are sold and pension paid from that...pretty stupid but thats Australiansuper for ya.
> 
> https://www.australiansuper.com/~/media/files/pds/choice income product disclosure statement.ashx




My understanding of how it works for Australian super - 

There is a cash option in Australiansuper so you can keep as much as you want in cash, and then of course you can draw your pension from this.

Not all people would have a transaction account because it is used in conjunction with the Member Direct option where you can buy and sell ASX 300 shares, ETFs etc and not all people would be interested in doing this (including the OP - sorry for hijacking thread!)

Should an amount build up in your transaction account (from selling shares or receiving dividends) that you don't want to use to buy more shares with then it is easily transferred into your 'normal investment options' where it would be available for drawing down.


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## GG999 (9 December 2016)

onthesword said:


> appreciate your input guys.
> 
> Bill, you clearly are more active in this area than I want to be, having been quite active with the fund before retirement and got some great dumb luck returns it's something I don't want to spend too much time with ( rather spend my time on other pursuits  but you have given me something to consider .




The rebalancing that Bill describes is very sensible and is the sort of thing that a financial advisor would suggest. If you have part of your money in say in 'Growth Option' then your super fund basically is doing the rebalancing between international shares, australian shares, property (or whatever is included in that fund's 'Growth Option) etc for you. 

You would be drawing down your pension from what you consider is one of the safer options that your fund offers. For example it could be cash - low returns but safer. If you chose a buffer of say 2 years then it would be up to you to check and 'rebalance' a few times per year to keep 2 years' worth of pension payments in your cash option. This would only take a short time for you so shouldn't prevent you spending plenty of time on your other pursuits


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