The big three to be aware of in the new financial year are Excess Transfer Balance Amounts, Managing Transfer Balance Caps and Death Benefit Nominations of your superannuation.
Excess Transfer Balance Amount
Many of you already know about the $1.6 million transfer balance cap, as we took actions to comply with the new legislation in June where applicable. For example, pension accounts with over $1.6 million have now been “refreshed” to reduce the balances to below $1.6 million. However, some of you may still have had an excess transfer balance amount on 1 July 2017. This may have been due to reasons such as market returns pushing the pension assets value above the $1.6 million cap in the lead-up to 30 June.
Where an excess is recorded, you will need to reduce your transfer balance account by making a commutation, either back to accumulation or out of the pension by 31 December 2017. We will contact you if this is the case for you and action is required.
This has been a more complex and time consuming exercise than anyone envisaged, particularly our politicians!
Manage Transfer Balance Caps
Where you have a spouse, some strategies could be used to “equilise” your super benefits and better utilise the transfer balance cap as a couple. The aim of these strategies is to ensure both spouses have equal but lower super balances (ideally lower than the transfer balance cap), therefore 100% of your super benefits can be transferred to tax-free pension accounts upon retirement.
One approach is to split up to 85% of the previous financial year’s concessional contributions with your less superannuated spouse.
Another option, if you have met a condition of release (e.g. retirement), is to cash out a portion of your super and arrange for the money to be contributed into your spouse’s super fund. This could even be done as a spouse contribution, where a tax offset of up to $540 may be available. Alternatively, the spouse could make a personal after-tax contribution, which may attract a Government Co-contribution.
We have now realised that the implementation of the new superannuation limits stretch well below clients who have more than $1.6 million in superannuation. It will be a very important issue to monitor in coming years and beyond to avoid missed opportunities.
Death Benefit Nominations of Your Super
It may be worthwhile reviewing the death benefit nominations of your super and pension funds, with the introduction of the transfer balance cap. This is particularly so if you have transferred your benefits from pension phase to accumulation phase.
For those who are in pension phase, you may want to complete a reversionary death benefit nomination, where the pension will automatically continue to be paid to a nominated beneficiary.
A key benefit of doing this is that the beneficiary will have 12 months from the date of death before a credit is recorded in their transfer balance account in relation to the death benefit pension.
This gives the beneficiary time to address their affairs and make arrangements to commute an amount from either the death benefit pension or their own member pension, which will be desirable if the death benefit pension will cause them to exceed their available transfer balance cap.
We have reviewed these nominations on client funds under our administration. Clients should check employer funds, and SMSFs in particular, to ensure they have appropriate nominations.