Retirees to be hit in the hip pocket when it comes to pension transfers

If you’re one of the ‘wealthy’ retirees in Australia, you could be facing higher annual tax bills because the method used to adjust for inflation on the proposed $1.6 million ceiling for tax-free superannuation pensions isn’t well understood.

According to the Australian Financial Review, wealthy retirees are set to be hit in the hip pocket when it comes to their superannuation pensions.

The Government’s proposed changes will affect those who have $1.6 million in the pension phase of their superannuation, but it will also affect those who intend on growing their superannuation fund beyond that amount in the future.

“The proportionate approach to indexing the transfer balance cap is complex and confusing,” head of policy as the SMSF Association, Jordan George, told the Australian Financial Review.

“We believe that the small revenue benefit to government of restricting future transfers under a higher indexed cap is outweighed by the complex laws required.”

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According to George, what the changes could mean is that if you currently self-manage your fund you might need to engage the services of a professional — such as an accountant or a financial advisor — to provide you with tax advice and assist you in making the most of any future transfers under the higher indexed cap, which would in turn ensure you don’t breach the transfer balance cap rules.

Nerida Cole, head of financial advisory at Dixon Advisory, also expressed concern.

“It just adds another level of complexity and makes it harder for self-managed fund members to track everything,” Cole says.

However, a spokesperson for Federal treasurer Scott Morrison says the method is fair and “allowing individuals who have already transferred $1.6 million to transfer further $100,000 lump sums into a retirement account, well after they have retired, would not be consistent with the objective of superannuation”.

To give you an understanding of what the Government’s proposal looks like, if you have $1.2 million transferred into your pension account by July 2017, which is when the rules are due to come into play, you will still be entitled to contribute another $400,000 (that’s 25 per cent of the $1.6 million cap) at a future date. However, if by the time you make your second contribution the amount has risen to $1.7 million, you’ll not only be able to add your $400,000 but you’ll be able to add a further 25 per cent of the $100,000 incremental rise (taking your total to $425,000).

The Government is looking to cap the rise in increments to $100,000 for those who do not transfer the full $1.6 million into their super pension fund on the first occasion. If you have made the full $1.6 million transfer then you have reached your limit and will not be able to make any additional top ups when the amount is increased to $1.7 million.

Do you self manage your superannuation fund? Do you have concerns about the proposed changes to tax-free superannuation pensions? Share your thoughts with us on this issue.

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