Superannuation members who have reached age 60 can benefit from the indexation of the transfer balance cap by converting their balance into unpreserved benefits and starting a pension, but may have to make changes to their employment status, according to an SMSF expert.
LightYear founder and director Grant Abbott said when a super fund member has their employment terminated at age 60, they can be considered retired under the superannuation rules.
“The Australian Prudential Regulation Authority has released guidelines on this and that person is retired under the definition of the Superannuation Industry (Supervision) (SIS) Act,” Abbott said during a presentation at the 30 Years of Strategies event today.
“It’s not retired in the way you and I would think under the common law and they may still be working for another 10 or 15 years, but for the SIS Act they are retired and that means their superannuation money is now unpreserved.
“With the limit for transferred pension balances [under the TBC] increasing to $1.9 million from 1 July, what they can do when turning 60 is to start a pension. If left too late, the growth in the accumulation phase may take them closer to that transfer balance, but if the pension is started at 60, all the growth that happens is not tested.”
He said this approach can work for clients aged 60 who are looking at ceasing one form of gainful employment for a time and may be looking at other forms of work in the future, but due to the change they can access their benefits immediately.
“Those benefits are now unpreserved and the money that is coming out is tax-free. If they return to work, they don’t have to take a salary but put it all into super, subject to caps, where it will be taxed at 15 per cent and that can be a huge tax strategy,” he said.
