T5 Pension strategies for retirement. Tim Miller SMSF Education Consultant Miller Super Solutions

Transcription

1 T5 Pension strategies for retirement Tim Miller SMSF Education Consultant Miller Super Solutions

2 Extending the client story Sandy s pension commenced in % taxable Sandy made contribution in March 2016 Should Sandy commute existing pension and start a new one? Should Sandy run two pensions?

3 Types of pensions available - SMSF Transition to retirement pensions Account-based pensions Market Linked pensions (term allocated) limited access since 20 September 2007 Lifetime/term pensions no access since 1 January 2006

4 Transition to Retirement Unrestricted benefits are withdrawn first Commutation allowed to withdraw unrestricted non-preserved benefits Commutation does count towards minimum pension Commutation does not count towards maximum pension Subject of ATO Public Determination SMSFD 2014/1 What about 100% preserved?

5 Transition to Retirement NTLG Superannuation Technical Minutes November 2009 Issue 6.4 Electing for a payment from an account based pension to be taxed as a lump sum Basis of question raised can a member with a TTR pension, where the entire balance is preserved, make an election under ITAA Reg so the payment is taxed as a superannuation lump sum rather than a superannuation income stream benefit? ATO response election can only be made if a commutation is possible

6 Transition to Retirement jump 6 years ATO Private Binding Ruling Register Authorisation Number Questions Is your client able make an election pursuant to regulation of the Income Tax Assessment Regulation 1997(ITAR) and have their superannuation benefit taxed in accordance with section of the Income Tax Assessment Act 1997 (ITAA 1997)? Advice/Answers Yes. Multiple other PBRs say the same thing

7 Transition to Retirement Inequity between SIS compliance and tax compliance which takes precedence? What is the intention of the law? (NTLG 2009) What about Exempt Current Pension Income? PBRs , , , Will the benefit count towards satisfying the required minimum pension? ATO The Commissioner is unable to rule!!!!!

8 Julie s TTR Does lump sum strategy work for Julie? Given Julie is 64 unlikely as all her income is exempt Is the TTR strategy beneficial for Julie? 16/17 absolutely TTR still beneficial with appropriate planning MTR reduction November 2016 TTR status lost will gain 100% access to benefits

9 Sandy s dilemma Sandy contributed $400,000 in March 2016 Sandy is 68 Fund-capped contribution limit for Sandy = $180,000 Investigate singular or multiple contributions in March Requirement to return excess contribution Multiple Pension considerations

10 Multiple Pensions v Single Pensions If Sandy has one pension = 42% tax free If have to return $220,000 = $92,400 tax free Does this mean Sandy is better off with a single pension? Alternatively is the pension commencement void due to the contribution not acceptable in first instance? Does Sandy have a choice?

11 Multiple Pensions the pro s and con s Blended families Estate Planning tax savings Trustee Administrative failings minimum shortfalls

12 Contribution Caps - Julie s solution to Sandy s dilemma If we assume that Sandy has to return $220,000 from NCC then his tax-free amount is $180,000 Julie withdraws $180,000 prior to June 2017 Julie re-contributes $180,000 spouse contribution June 2017 This assumes existing NCC rules apply to 30 June 2017 If so then potential for spouse re-contribution $100,000 subject to work test post 1 July 2017 annually until 74 Then there is the CGT Cap to consider? T8 Advanced Contribution Issues

13 Caps all around us Julie and Sandy have issues re what they can put into their Fund Possibly very little or $$$$$$ if CGT Cap Julie currently has $2.3m subject to withdrawal and re-contribution strategy Proposed Transfer Balance Cap says only $1.6m in pension from 1 July 2016 What are the ramifications?

14 Transfer Balance Cap Indexed by $100,000 Any unused cap is calculated as a proportion of cap applicable to future indexation If Julie commences a pension with only $800,000 at 1 July 2017 then 50% If Cap indexes to $1.7m then Julie has 50% = $850,000 If member is only just above the cap what action do they take?

15 Transfer Balance Cap existing pensions Julie has $2.3m in pension $700k excess to cap what options? Re-contribute to Sandy subject to work test Internally roll $700k to accumulation - earnings taxed at 15% If we assume 8% earnings then 15% = $8,400 What about tax offsets franking credits?

16 Asset segregation Only income on assets supporting $1.6m entitled to ECPI deduction Existing property yields 12% Growth not counted towards cap Is it worth segregating property and some cash to the member s pension interests? Must ensure pension liability met

17 Transfer Balance Cap existing pensions Julie has $2.3m in pension $700k excess to cap what options? Leave it in the pension? Expectation this will be taxed similarly to excess contributions! Take it out of super This may be beneficial if minimal assets outside of super

18 What other pension considerations - reversions Reversionary pensions give piece of mind with regards to Estate Planning What piece of mind do they give for Transfer Balance Cap Will RBL style reporting be required to track reversionary pensions Will these pensions count against the Spouses TBC Should we therefore be using this time to formally commute existing pensions to recommence as reversionary? What flow on effect does that have on Social Security?

19 What other pension considerations - commutations Currently full commutation requires pro-rata minimum and then roll back to accumulation What are the logistics associated with full commutations and the transfer balance cap? RBL indexation calculations Do we assume partial commutations are a thing of the past? What flow on effect does that have on Grandfathered Social Security?

20 What other pension considerations - death Pensions are also an insurance based strategy The Transfer Balance Cap does not contemplate insurance If a member takes out life insurance i.e. $2m and dies at 45, what next? Can the spouse only pay an income stream valued at $1.6m? Will this be an exclusion similar to that announced for personal injury?

21 Pension planning strategies for retirement The reduction of the NCC and introduction of the Transfer Balance cap change the way we have to think about strategies What we did pre 2016 may not be possible post 2017 What we did pre 2007 may be dusted off post 2017 We haven t even got started on Market Linked and Lifetime/Term Pensions!!

22 Questions?

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