There is no doubt the May 2016 budget superannuation changes were profound and have significantly changed the way we need to think about superannuation.
It may well be that on the face of it the $1.6M pension cap per member appears generous, and for many superannuation members possibly will never be attained, because of the restricted superannuation contribution measures that have been put in place.
Mary and John each have $900K in their member balances and the total value of the fund is $1.8M. Both Mary and John are in their later years, and they are both drawing a pension.
Unfortunately, John passes away. Mary now needs to address the $1.6M pension cap.
Whilst there are several possibilities, what is definitely clear in the new legislation is that Mary needs to get under $1.6M, and at least $200K needs to be paid as cash death benefit.
The value of the superannuation fund is represented by a single commercial property.
Whilst Mary can keep $1.6M in the fund and $200K needs to come out, how does she deal with a single asset investment in the superannuation fund.
It would appear unless there are sufficient funds in the superannuation fund the property would need to be sold.
An Intended or Unintended consequence.
There is no doubt reversionary pension strategies and compulsory payment of death benefit strategies will need to be closely reviewed and considered.
Within the example presented a surviving member has lost the ability to retain a reversionary pension of the entire balance of the deceased member and is forced to cash out the death benefit in excess of $1.6M.
Now consider a fund that has $3M in it across two members.
There is a lot of rethinking that will need to occur around for death benefit payments in SMSF where the fund balance exceeds $1.6M.
Under the new legislation, the death benefit may need to be cashed out. Retirees who thought that their tax obligation had substantially diminished will find themselves back in the tax arena.
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.