Lawyer flags conflict of interest issues with $1.6m cap
The $1.6 million transfer balance cap has the potential to create internal conflicts of interest for power of attorney where there are multiple beneficiaries inheriting from different components of a fund, an industry lawyer has warned.
Argyle Lawyers managing principal Peter Bobbin says a power of attorney who in part relies on their principal’s, now capped, income stream may face a conflict of interest with the person or persons who are set to inherit the lump sum component
He told SMSF Adviser that if an individual was acting as power of attorney for their mother and their mother’s super fund had a balance of $2 million, the fund would be broken into the $1.6 million pension component and a $400,000 accumulation component.
“Say, mum needs an extra $100,000, do I take it out of the pension money because I’m using up part of the $1.6 million cap and that way I can justify it conceptually because it’s tax free? That would leave the accumulation component intact, the $400,000, and I’m a beneficiary so I want the $400,000 to build up,” Mr Bobbin said.
“Or maybe I do the reverse and I take the money out of the accumulation component because I want to build up the pension money. So I take the money out of the $400,000 component because that’s paying tax and the rest of it isn’t so I keep her pension to the absolute minimum and when she needs extra money, I take it out of the lump sum money.”
Mr Bobbin said if you have got a power of attorney that’s specifically dedicated to a super fund, it can create a potential conflict of interest in terms of how they make a decision because that decision will impact ultimately on what the death benefit may end up being.
“[For example] if mum has a reversionary pension to dad but the lump sum is going to be paid out to the kids, then as a power of attorney holder if I’m dad, or maybe a step-dad, then I may want to actually pay the money out of the accumulation part, not the pension part, because by maximising the pension, I maximise my reversionary pension,” he explained.
“If I’m the child on the other hand, [acting as the power of attorney] then I don’t want this Johnny-come-lately to get the money. So it becomes quite significant where the end benefit in the super fund goes to different people on death [and] the income stream versus whatever the accumulation amount is goes to different people. That’s where it really becomes an issue.”
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 has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.