SMSF investors with lumpy assets in excess of the proposed $1.6 million cap on transfers to pension accounts may not be forced to sell to be compliant with the new rules, despite increasing industry speculation and concern.
If the budget measures are passed into legislation, from 1 July 2017, a $1.6 million cap on the total amount of superannuation that can be used to commence a pension will apply.
Speaking at the SMSF in Practice conference in Sydney, SuperConcepts head of policy Peter Burgess said that while it still wasn’t clear in the budget details, he believes SMSFs will have the option of using the unsegregated approach in dealing with large assets and the $1.6 million cap.
"The portion in excess of $1.6 million will be in the accumulation phase, and an actuary at the end of the year will be required to determine the earnings that relate to the accumulation assets," explained Mr Burgess.
"In some cases the unsegregated approach may be the only option, with the only other alternative [for those holding large assets] to take the money out of the fund by selling the lumpy asset," he said.
Mr Burgess said the budget announcements will see a greater focus on segregation, which is likely to create some challenges for the superannuation sector, particularly the sovereign superannuation sector where segregation is not common at the moment.
"It will definitely create some challenges for administrators and software providers," he said.
There will also be a greater focus on ensuring the assets in the pension pool are the high capital growth stocks, he said, and that only the minimum pension is being drawn from that pool with all other income needs being drawn from the accumulation pool.
"Essentially what you’ll want to do is wind down the accumulation pool, rather than winding down the pension pool, because money in the pension pool is exempt from tax, and it’s not in the accumulation pool," he said.
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