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Retirement

Death benefits set to take a hit

By Miranda Brownlee · May 19 2016
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Retirement

Death benefits set to take a hit

By Miranda Brownlee
May 19 2016
Reading:
egg
egg
egg

Death benefits set to take a hit

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By Miranda Brownlee · May 19 2016
Reading:
egg
egg
egg

SMSF investors may see their death benefits slashed under the proposed budget changes, which will likely be effective from next year if the Turnbull government stays in power.

In the 2016 federal budget, Treasurer Scott Morrison proposed a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into pension phase accounts.

Speaking at an event in Sydney, HLB Mann Judd partner of wealth management, superannuation, Michael Hutton said that in the budget consultation process, the government needs to prioritise working out how the $1.6 million pension cap will apply where a superannuation member dies.

"[For example], let's say a couple holds a combined $3.2 million super fund where both spouses have already taken out their $1.6 million pensions, and one spouse dies. Can the surviving spouse then take it as a pension, or are they not able to because they've used up their entire pension limit?" said Mr Hutton.

"Under the current system there is no pension limit as such, so they can take it as a pension or as a lump sum."

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Mr Hutton said if the remaining spouse has to take the benefit as a lump sum under the proposed $1.6 million cap, that immediately reduces the amount in the SMSF by half, at the time of the death of the first spouse.

"That's a question I'd like to ask Scott Morrison, and I'd be interested to hear the answer," said Mr Hutton.

Mr Hutton said the $1.6 million pension cap also brings up issues around gender and stay at home parents.

"It's a $1.6 million limit, but does that mean $3.2 million for a couple? Is there going to be any opportunity for a couple where $3 million is in one person’s account, $200,000 is in the other person's account, does the husband and wife have the opportunity to get $3.2 million into pension mode?" said Mr Hutton.

"Or will the one with $3 million only get $1.6 million into super, while the one with $200,000 can only get $200,000 into pension mode?"

If this is the case, he said, the limit would only be a $1.8 million pension limit for the couple, rather than $3.2 million.

"Another couple, [however], might get $3.2 million where there hasn't been a stay at home partner and the assets have been accumulated equally over time."

Death benefits set to take a hit
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