Govt urged to consider changes to death benefit payments
The SMSF Association has urged the government to introduce fund-to-fund rollovers of death benefits to adult children, and has renewed calls to repeal the anti-detriment strategy.
In its pre-budget submission, the SMSF Association said adult children should be able to retain the proceeds of a superannuation death benefit in the form of a preserved benefit in the superannuation accumulation phase, by way of an internal fund-to-fund rollover.
“This rollover would occur after the tax that is liable to be paid on the benefit under the current law is paid,” SMSFA explained.
“This would ensure that this measure is revenue-neutral as there would be no difference in the tax outcome for the benefit in question.”
Allowing adult children to retain the proceeds of a death benefit within the superannuation system, SMSFA said, will assist and encourage these individuals to ultimately generate an adequate and independent level of retirement savings.
“Further, this type of rollover will help focus the superannuation system on ensuring that superannuation savings are used for the provision of retirement income instead of providing bequests to adult children,” said SMSFA.
The submission said the anti-detriment rules apply inequitably and affect the various types of superannuation funds in different ways.
The uneven application of the anti-detriment rules means that members of different funds can have vastly different death benefits paid in respect to their superannuation balance at time of death.
Graeme Colley, SMSFA's director of technical and professional standards, told SMSF Adviser last year the anti-detriment strategy can also be complex to implement and can inadvertently result in excess concessional contributions.
The submission said the complexity of the anti-detriment rules means that the operation of the rules is often poorly understood by superannuation funds, financial planners and, most importantly, superannuation fund members.
As a result, the submission said many members consequently don’t understand their entitlements.
“Removal of the anti-detriment rules would also ensure that all superannuation members’ dependants are treated equally when receiving death benefits,” said SMSFA.
The submission also called the government to end the ‘use it or lose it’ approach to unused concessional contributions and for the exclusion of the active member test as a requirement for a superannuation fund to qualify for taxation concessions.
The current approach to concessional contributions, according to SMSFA chief executive Andrea Slattery, delivers a “poor result for those people with volatile incomes”, including women, small business owners or farmers whose income can fluctuate widely.
“Ultimately, making the contribution caps more flexible will ensure that everyone saving for retirement will have ample opportunity to make contributions to superannuation to build adequate savings that can be drawn down later in life,” she said.