Question: My wife and I have an SMSF in pension phase and I am not clear of the proposed new rules for super in pension phase. The balance of the fund is around the $1.6 limit. I am 74 and my wife 70. I am fully retired and my wife works one day a week.

My questions are:

1. What happens if the account balance is above $1.6m at the end of any financial year?
2. Is the fund allowed to earn a limited amount before being taxed?
3. Is it better to withdraw any amount above the $1.6m for simplicity?
4. As there are two members in our SMSF, are we allowed $1.6m each to make our limit $3.2m?

Answer (by Paul Rickard): It is an individual member balance, rather than an SMSF balance, so, potentially, your collective assets could be $3.2m (question 4).

In relation to your other questions:

1. You will be required to take it out (any amount over the $1.6 m) This can be via a withdrawal, or rolling it back into an ‘accumulation account’ within the SMSF.
2. Depends by what amount you exceed it by. If under $100,000, then yes – there may be no additional tax, otherwise additional tax will apply.
3. Many people will roll any excess back into an ‘accumulation account’, where the investment earnings will be taxed at 15%. If you have no (or virtually no) other investment income outside super and currently aren’t accessing your tax-free income threshold of $18,200, then it might make sense to withdraw some or all of the excess, invest it outside super, and utilise the tax -free income threshold.

Question: I wonder if you have any research on G8? I have looked at what Morningstar has to say on them, and they look pretty sound, but we got badly burnt on ABC, hence the jitters. After all, surely childcare is a pretty strong market? Appreciate your feedback.

Answer (by Peter Switzer): I can’t get that excited about G8 Education (GEM), although the price metrics are reasonably positive.

As for the major brokers, they are neutral to positive.

According to FNArena, the consensus target price is $3.55, about 12% higher than the current price.

Trading on a multiple of 13.0 times forecast FY16 earnings, 11.8 times FY17 earnings. Forecast dividend yield is 7.6%.

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