The operation of superannuation laws, which allow people to hold money in a retirement savings vehicle after age 65 but restricts how much they can have in pension phase, runs counter to the objective of the sole purpose test, according to an SMSF technical specialist.
Smarter SMSF education and technical manager Tim Miller pointed out for many superannuants, turning 65 was a key date on which they could access their retirement savings, but full access to these benefits were limited except for those who had died.
“Once you’ve retired, there is no cashing restriction and you can access your full benefits, but age 65 is still the number one condition of release for most people and the golden age for being able to get full access to your superannuation,” Miller told attendees of a Super Guardian practitioner webinar held today.
“Permanent incapacity and terminal illness also gives full access [as does] the death of a member and it is the only compulsory cashing requirement, which is where I tend to get onto my soapbox around superannuation and the sole purpose test and the transfer balance cap.
“If death is the only cashing requirement, this means people can retain money in super beyond age 65, however, that is in direct competition to the sole purpose test, which states the purpose of superannuation is to provide benefits upon retirement or upon turning 65.
“The introduction of the transfer balance cap triggers me because that cap states you can only put, at present, $2 million into superannuation to be able to pay a pension.
According to Miller the transfer balance cap runs contrary to the sole purpose test because it can be seen as restricting the drawdown phase superannuation to $2 million, while allowing individuals to retain as much money as they want in an accumulation interest.
“Why are we restricting how much you put into pension? The anomalies created by tax law, such as exempt current pension income, are in direct competition in my view when it comes to things such as the sole purpose test and the requirement to pay benefits out,” he argued.
