1 July changes prompt rethink on pension planing
Advisers may need to revisit certain aspects of their pension planning for SMSFs where the clients have contributions and pensions happening at the same time, says a technical expert.
Speaking in a recent podcast, Heffron managing director Meg Heffron explained that following the removal of the work test for individuals making non-concessional contributions up to age 75, there is likely to be more clients making contributions and receiving a pension at the same time.
While the idea of pensions and contributions happening at the same time is a not new concept for many SMSF clients, she said, this used to happen in a much narrower window.
“This used to happen in a relatively narrow window between age 60–67, and now that’s potentially going to happen all the way from age 60 all the way to age 75,” she noted.
While this change opens up a lot of opportunities for SMSF clients, Ms Heffron cautioned that there are also a few things that can trip up SMSF professionals and their clients.
“[For example], the member might have standing instructions to the trustee which states that if they’re taking more than the minimum pension that they’d like the excess that they’re drawing to come from the accumulation account,” she stated.
“But of course that’s the last thing you’d want if what you’re adding to your accumulation account is non-concessional contributions. You’d probably rather be taking a partial commutation from your pension which might be 100 per cent taxable component and letting your non-concessional contributions build up in your accumulation account and periodically starting a new pension with whatever transfer balance cap space you’ve created.”
Ms Heffron said SMSF professionals may therefore need to review some of those tweaks they’ve put in place as part of good planning in the past.
“We may need to rethink them in that period where we’re doing contributions and pensions at the same time,” she said.
The timing around notice of intent to claim forms will also be critical, she added.
“If you’re putting money in and taking money out all at the same time and you’ve got a contribution going into your accumulation account that you’re planning to claim a tax deduction on, then the last thing you want is for that deduction to be denied because you haven’t done your notice of intent,” she said.
“It's another one of those situations where there’s some extra flexibility and changes that are fundamentally really good for SMSF clients, but it also opens up some opportunities for stuffing things up.”
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
