Cooper Grace Ward Lawyers Scott Hay-Bartlem says the new amendment proposed in Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulations 2017 could provide SMSF trustees with non-commutable income stream, with the ability to commute these income streams.
“Also, if someone has both market-linked and account-based pensions and together they result in an excess transfer balance, under this proposed change, the market-linked pension could be commuted back to accumulation phase to remove even an expected excess, leaving the account-based pension in place,” Mr Hay-Bartlem told SMSF Adviser.
He said market-linked pensions generally cannot be commuted, which is currently causing issues for trustees who are above the $1.6 million transfer balance limit.
“The problem is that people started these market-linked pensions back in the old RBL days and now we really can’t get rid of them,” Mr Hay-Bartlem said.
“So the draft regulations would allow you to commute a market-linked pension, which you otherwise couldn’t commute to get rid of the excess.”
Mr Hay-Bartlem noted, however, that under these changes, more is required than simply commuting the pension.
“The amendments allow the pension terms to allow a commutation, so first the pension terms must be amended to allow for the commutation. This could provide some issues, depending on the wording of the trust deed and pension terms,” he said.
I am pleased to see that some action is being taken on this anomaly. We have some clients that will have their TAP assessed against the $1.6M cap at $200000 more than its actual capital value. In my opinion, when RBLs were abolished, there should have been an option to commute these restrictive pensions.
Can you please tell me how to calculate what the TAP will be valued at?
The TAP will be valued at the gross annual pension for 17/18 multiplied by the number of years remaining for this pension. So if the pension for next year is $15000 and there are 15 years remaining, the assessed capital value is $225000 (even though it is most likely that the actual assets supporting this pension will be less than this).
Given our government has no idea of the confusion they continue to cause. They can’t even yet value their own CSS pensions.
And when you have clients that have both CSS or TAPs and ABPs and pension cap issues you have a regulatory great unknown.
You can have the absurd case where the formula for the TAP is producing values far higher than the actual market value of the assets. How these government bureaucrats can come up with these rules that a real asset backed TAP has a higher value than the actual real assets backing these TAPs is a complete joke. Can someone in Canberra please tell these people that’s why they are called Market Linked Pensions because they have real assets that are linked to real Market values.
And please pull your heads out of your butts and produce the CSS values to allow proper client retirement planning too.
This governments handling of the super changes is a complete shambles.
Given our government has no idea of the confusion they continue to cause. They can’t even yet value their own CSS pensions.
And when you have clients that have both CSS or TAPS and ABPs and pension cap issues you have a regulatory great unknown. You can have the absurd case where the formula for the TAP is producing values far higher than the actual market value of the assets. How these government bureaucrats can come up with these rules that a real asset backed TAP has a higher value than the actual real assets backing these TAPs is a complete joke. Can someone in Canberra please tell these people that’s why they are called Market Linked Pensions because they have real assets that are linked to real Market values.
And please pull your heads out of your butts and produce the CSS values to allow proper client retirement planning too.
This governments handling of the super changes is a complete shambles.