The super reforms include a new $1.6m transfer cap that limits the amount of super assets that can be moved into the pension phase and generate tax-free earnings. Additionally, many of the tax benefits associated with Transition to Retirement (TTR) pensions end on 30 June, 2017, rendering many TTR strategies ineffective. If you have a TTR pension or you are in the pension phase with a pension balance across all your super funds that exceeds $1.6m, these changes apply to you. It is extremely important that you take action and seek advice without delay.
The $1.6m transfer cap will apply from 1 July, 2017. This means that you only have until 30 June, 2017 to reduce, roll back or ‘commute’ your existing pension so that your super balance is below the new cap.
By taking action now you will avoid penalties for failure to comply. More importantly, you will also give yourself the time you’ll need to seek advice and for carefully considering your options. Your aim will be to respond to the new legislation in a way that has minimal impact on your tax situation and, going forward, preserves capital in superannuation and maximises your pension strategy in the new regulatory environment.
Failure to take action may also result in rolling back to $1.6m in an ineffective way. You may have built many pension compositions over years in a particular manner to achieve minimum tax impact in your estate planning. If your plan to roll back to $1.6m is effective, it is likely that these strategies can be entirely, or at least partly, preserved to minimise exposure to death benefits tax.
If you have a transition pension, failing to commute may result in undesired leakage of capital from your super without associated tax benefits.
Here’s what you need to do:
- Determine whether your member’s balance across all superannuation funds in the pension phase exceeds $1.6m.
- If so, consider which pensions must be addressed to reduce this balance to less than $1.6m and document this decision to the Trustees of the Fund
- If you have a TTR pension, evaluate whether your strategy is effective now that earnings associated with the pension are not tax-free and minimum pension payments are required.
If you have any questions about the pension commutation changes, or any other aspects of the new super reforms, please contact BNSW Planning on (02) 8252 5555 or email firstname.lastname@example.org
BNSW Planning Pty Limited, a wholly owned subsidiary of BrentnallsNSW Pty Ltd, holds a limited Australian Financial Services (AFS) licence and is fully compliant under 2016 legislation governing the delivery of super and SMSF advice by an accounting firm. For further information, please view our Financial Planning series of articles:
- 2016 brings regulatory changes to advice on super – What’s the buzz?
- Don’t get caught out by super advice changes
- BrentnallsNSW super solution
2017 Superannuation Reforms Video Presentation & Handout
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