AMP SMSF outlines proposed legislative changes
AMP SMSF’s Peter Burgess has outlined proposed legislative changes to account-based pensions and the associated concerns for SMSF practitioners.
The Social Services and Other Legislation Amendment Bill, which will apply to all account-based pensions, passed the lower house last week. Mr Burgess told SMSF Adviser it is also likely to pass the Senate as drafted.
The Bill is an attempt to bring account-based pensions into line with other investment products, which are subject to deeming, Mr Burgess said.
“[With] any new pension commencing from 1 Jan 2015, for social security income test purposes it’ll be deemed, rather than the approach that applies at the moment, where there’s a calculation undertaken which in many cases results in a lower amount being included in the income test,” he added.
Mr Burgess indicated potential issues associated with these new rules include the grandfathering provisions.
“What they’re saying is that [if] you’ve commenced your account-based pensions before 1 January 2015 you’ll still be subject to the old rules which currently apply,” Mr Burgess said.
“But if you change providers, so if you’re not happy with your fund and you decide to roll your account-based pension over to a new fund after 1 January 2015, then that will trigger the new deeming rules to your pension,” he added.
“That’s a bit of a problem, particularly [if] people are not happy with their service provider. If they do make the change it may have an adverse impact on pension entitlements.”
Mr Burgess also highlighted issues related to reversionary pensions and grandfathering under these new rules.
“If you set it up as reversionary now, then on your death your spouse will continue to enjoy the higher deductible amount,” Mr Burgess said.
“What we may see is some people changing their pensions from non-reversionary to reversionary in the lead up to 1 Jan 2015 to try and lock in the higher deductible amount.”
However, Mr Burgess said this needs to be assessed on a case-by-case basis so that deductible amounts are not adversely impacted.