Pension and Retirement by Chan & Naylor

Burden for Retirees Post 1st July 2017

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Effective from 1 July 2017, for every Australian, a cap of $1.6 million will be imposed on the amount of super that can be transferred into retirement phase (what we currently call pension phase).

For Australians in pension phase before July 2017 and who will have more than $1.6 million in super pension accounts as of 30 June 2017, the new rules effectively force Australians to remove the excess super benefits from pension phase.

Whilst those fortunate enough to reach the $1.6M limit, also known as the transfer balance cap, it should be noted that it applies to each person, but note that if a pension account is in one person’s name, and that account is financing the retirement of a couple, the single pension account is eligible to use only one $1.6 million cap. If a couple have 2 separate pension accounts in separate names of each member of the couple, then the $1.6 million cap applies to each pension account, potentially taking the transfer balances to $3.2 million.

If a fund member arranges for a superannuation death benefit pension, or a reversionary pension, to be paid to a spouse when the fund member dies, then the value of the pension is added to the surviving spouse’s transfer balance account (note that it is not added to the surviving spouse’s transfer balance cap).

In the exposure draft explanatory materials supporting the draft legislation, the government decided that the surviving spouse has less than 12 months to get his or her act together to reduce the transfer balance account to within his or her transfer balance cap. ONLY FOR REVERSIONARY PENSIONS… otherwise one has 6 months (or ‘as soon as practicable’) to reduce the respective transfer balance account to within their transfer balance cap via the payment of regular death benefit pensions. This is especially problematic should the assets of a pooled SMSF comprise of a large commercial property for example. One would question, if this scenario was ever given any consideration when the legislation was drafted.

Related:  Self Managed Superannuation Fund (SMSF) - Exit strategies


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Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.

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