The treatment of death benefits rollovers under the new transfer balance cap has been a sleeper, with most people thinking about the $1.6 million transfer balance cap.
The issue is that if their partner dies the death benefit will be measured against the survivor’s transfer balance gap.
That is a real issue. How rollovers are measured against this cap depends on the value and the type of pension.
If it is an account-based pension it will be the value of the pension. A reversionary account-based pension is no different.
If it is a defined benefit pension then the value of that pension gets counted, and it might mean that the individual has got to commute other account based pension benefits to accumulation phase so they can because the defined benefit pension cannot be commuted.
You have what I call death benefit pensions, which are those given under binding death benefit nominations and then you have things called auto-reversionary pensions. They’re a bit of a first.
On the death of the individual, it’s the value of that auto-reversionary pension which is counted against the survivor’s cap. They’ve got up to 12 months to decide what they’ll do to deal with that.
The survivor might want to draw it down as a lump sum, partially commute or continue with the pension.
There are also issues with binding death benefit nominations. One issue is making sure the binding death benefit nomination covers the wishes of the deceased. In some cases it might be a requirement that a pension be paid.
But now you might be commuting that pension, so you need to work out what happens with that commuted amount.
From July 1, people have got to take those death benefits out of super if they are required to be commuted. You can’t roll those over as you can under the current rules and put them into the individual’s accumulation account.
That’s one thing that people need to think about.
Then when you are taking money out of superannuation, you have to think about what you can do with it.
If you have to take money out of super, you need to think about how you can maximise the amount you currently have in super and then what do I do with the proceeds I’ve got to take out of it.
Look at your tax position. Look at gifting it to others to allow the to contribute to super. We have clients at the moment who are looking at gifting some of that money to grandchildren or their children, for contributions to be made to super.
In one case a client took money out and used it to assist a grandchild purchase a home.
Graeme Colley is executive manager, SMSF technical and private wealth at SuperConcepts.