Pension commutation decisions still causing confusion

Some SMSF practitioners are still unclear on which pensions to commute for clients in order to achieve optimal estate planning outcomes, according to a technical expert.

SuperConcepts’ Graeme Colley says the process of determining which pension should be commuted for clients who have more than $1.6 million in pension phase is causing confusion for SMSF practitioners.

“I think some SMSF practitioners are not fully appreciating which pensions they need to commute in full or in part for estate planning purposes,” Mr Colley said.

“The portion which has the highest tax-free component should remain in pension phase, and the pension with the highest taxable portion should be transferred over to the accumulation phase to get it down to the $1.6 million.”

The sole reason for doing that, he said, is for estate planning purposes.

“So when children who are older than 18 ended up as the recipients of that benefit it would be tax free to the extent of the proportion that’s tax free.”

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