Superannuation Legislative Changes
RISE Standards, Bourham & Vaux Blog
Written by: James Farrelly, Financial Adviser & Accountant Resource Manager
The below Blog has been written by James Farrelly for our clients and associates and contains important information regarding Superannuation and how the recent legislative changes will affect everyone.
“The 2016 Budget has brought about many considerations for individuals who will retire with more than $1.6 million in super. Under the proposed legislation, you won’t be able to use more than $1.6 million to set up an income stream. The rest will have to sit in super in the accumulation phase or come out of super altogether. People will need to look at the best way to structure their investments going forward – an income stream in super, accumulation account in super, or invest outside super in your personal name. When restructuring the ownership of your assets it may also be important to consider capital gains tax. For example, if selling investments it may pay to sell these investments while your super is still in pension phase, rather than after you have rolled it back into accumulation phase – that way you won’t incur capital gains tax.
Transition to Retirement Pensions is also going to be affected by the proposed changes. A Transition to Retirement Pension is an income stream that you draw from your super while you are still working. Up until now, the earnings on the underlying investments for this structure have been tax-free. However, from 1 July 2017, this will no longer be the case. You need to speak to your financial adviser before this happens, to see if there are some alternative strategies that can be considered.
Another thing to consider is what you want to have happened to your superannuation when you die – who do you want it to go to, and what might be the possible tax consequences? One arrangement you can make, if you are in pension phase, is to make your spouse a reversionary pensioner. This means that when you die, your spouse can continue to receive your superannuation income stream the same way you did. This can have Centrelink and tax benefits as well. For example, for superannuation income streams that were set up before 1 January 2015, Centrelink gave a more favourable treatment under their income test. If your superannuation income stream is one of these, and you’ve nominated your spouse as the reversionary pensioner, the favourable Centrelink treatment will carry through and apply to your spouse as well. However, if you’ve made a different kind of nomination, the Centrelink treatment “resets” and becomes the less favourable kind. So if these are your circumstances, it can be to your benefit to nominating your spouse as your reversionary pensioner.
Another advantage of a reversionary pensioner arrangement has to do with insurance. Suppose you have life insurance as part of your super, and when you die the death benefit is to be paid to a superannuation beneficiary. If this is paid into a pension fund with a reversionary beneficiary the insurance proceeds will be treated with the same tax allocation as your pension account. This will then be of greater benefit for future beneficiaries who are not financial dependants as it may reduce your tax consequences at death.
These are just a few of the potential tax and Centrelink benefits that you can obtain, simply by knowing the best way of structuring your affairs – hence the value of obtaining professional financial advice.”
General Advice Warning
The information contained in this document is general advice, which means that it has been prepared without taking into account your personal objectives, financial situation or needs. Because of that, you should consider the appropriateness of the advice, having regard to your personal objectives, financial situation and needs. If this document includes general advice about the acquisition or possible acquisition of a financial product, you should obtain and read the Product Disclosure Statement which relates to the financial product before making a decision about whether to acquire the product.