Author: Jason Roccasalvo, Partner, TAG Financial Services
Our 5 Part – Super Client Strategies, are designed to be used with your clients straight away. In Part 1, we focus on pension changes and how this can be used effectively and successfully.
The markets have seen a significant reduction in capital, and no one has been spared.
For those with clients in pension mode, the reduction in the annual minimum through until 30 June 2021 is a welcome relief. However, many clients may still be concerned more deeply about their savings. For these, what can we as advisers look towards?
For those with clients who have utilised all of their Transfer Balance Cap, with amounts also in accumulation mode, a timely commutation given the extent of uncertainty in society will reduce the current “strain” on their cash, and allow clients to draw only what they need, and not be forced to take an amount which may be greater.
Timing this commutation could mean that for many clients their Transfer Balance Account would become negative, potentially allowing members in time to re-commence when a pension with greater certainty about their futures and cash flows, and again with timing may actually allow members to increase the proportion of their super in pension mode, and provide long term benefits such as:
- Larger ECPI %
- Increased tax-free income within the Fund.
However, not every case is the same and before ceasing a pension you must consider items such as:
- Pro rata minimums – have these been taken,
- Consider the taxable/tax-free split of member balances and the mixing of these, as everything will form part of the same member account,
- Consider the impact on a death benefit and the suitability of the BDBN,
- TBAR reporting will need to be completed (on both the commutation and commencement),
- Impact on Centrelink/other government benefits e.g. a new pension may not be grandfathered, and
- The impact a ‘non pension’ period of time will have on the client’s tax position in the current financial year.
Yes, there are more things to consider and be aware of before commuting a pension, however for suitable clients, this strategy implemented in a timely manner, can provide significant longer term benefits.
If you have any questions, please contact us on 03 9886 0800 or via email.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).