Understanding why funds are kept in in the accumulation phase of super instead of the pension phase

At the Results > Strategy summary step, in the summary section for a superannuation fund or SMSF, you may see funds appear in the accumulation phase, when you are expecting all funds to be in the pension phase. This is more likely to happen if you have allowed Pathfinder to calculate if and when to start an account-based pension or transition to retirement income stream.

The table, below, lists reasons for why this may be happening, so you can decide if it is appropriate for your client or not.

Possible reason funds are in the accumulation phaseSuggestions for adjusting your case

They are drawing down assets outside super to meet their expenses, rather than drawing a pension from super.

You can check this at the Results > Cash flows & Action items step - in the 'Revenue' section, check if there is income from withdrawals.

The taxed, accumulation phase of super has a better return than any investments outside super, so Pathfinder is preferring the option with the best return.

If you want to change this:

They can meet their expenses with a pension phase balance that is less than their total super balance.

If they rollover all their funds to the pension phase, the amount they would need to withdraw would exceed their expenses, so they would have leftover cash that would need to be kept outside super.

You can check this at the Results > Cash flows & Action items step. If their only significant income is from the ANP, then Pathfinder has calculated the maximum pension they need to meet expenses.

Pathfinder is trying to maximise the Age Pension entitlement of the individual's older spouse.

To check this, see How to maximise an individual's Age Pension entitlement by keeping their spouse's funds in the accumulation phase.

For more information, see How to maximise an individual's Age Pension entitlement by keeping their spouse's funds in the accumulation phase.

If you do not want to take advantage of this strategy, you can prevent the rollbacks, for more, see How to prevent rollbacks from pension phase to accumulation phase in a superannuation fund

The individual has reached their Individual transfer balance cap and is not allowed to rollover more funds to the pension phase, so keeping funds in the accumulation phase is their next best option.

To see if this is the cause, you can check the 'Superannuation transfer balance account' report (under 'Results > Detailed reports', on the left menu choose the individual, then: Cash flows > Superannuation transfer balance account.  Check the 'Cap used (%)' line, if it is at 100%, then no more funds can be rolled over to the Pension phase.

No adjustment is required because Pathfinder keeps within the legislation and will not violate the transfer balance cap.

The individual is still making compulsory and/or voluntary deposits, and these need to be made to the accumulation phase of super.

To see if this is the cause, the best place to check if deposits are still being made is in the Detailed reports step. Then select the individual (left menu), then Cash flows > Super deposits summary.

Due to the way that the Pathfinder model works, it does rollovers at the start of the year and then receives contributions throughout the year.  So, if Pathfinder receives contributions in one year, it will wait until the next year to roll them over to the pension phase.  You may wish to note to your clients that, in practice, they can rollover the amounts sooner.

If Pathfinder is not rolling over the funds in the next year, then check the rest of this table for why it's keeping the funds for longer than a year.

(SMSFs only) There is not enough liquidity in the SMSF assets

Once an asset is in pension phase, you often need to be able to sell it down because there are compulsory withdrawals.  If your instructions for the assets prevent from being sold, then Pathfinder may keep them in the accumulation phase because if the assets move to the pension phase then they will have to be sold and this will break your instruction.

Adjust the options for your assets in super so that they are more flexible, that is:

  • Avoid options that keep very high minimum balances - you can use the series builder to reduce the minimum balance at retirement (for more see How to increase a value in series builder) or use 
  • Avoid options like 'Leave alone' or 'Do not sell' - you change to 'Sell down' or 'Keep for X years' or   or 'Control by %'