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Super changes hugely affect divorce planning

Dealing with divorce has been flagged as a major issue that will affect advisers and SMSF trustees if the new super contribution proposals go ahead.

“Divorce is going to be one of the bigger issues because, after talking to a divorce lawyer, more and more divorces are happening to empty nesters after all the kids have left home,” Verante Financial Planning director and SMSF specialist Liam Shorte told the SMSF Association NSW chapter breakfast in Sydney last week.

“You’re finding a lot of people divorcing in their early 60s have strategies that involve one holding onto the home and one holding onto the super.

“I got a phone call from a lawyer the other day who basically said they had a client whose wife was taking the house while he was taking the super because he’s slightly older, with the idea that the wife would build back up her super fairly quickly using contributions over the next 10 years for her retirement.”

Shorte said in that example, if the clients were to go ahead with the wife receiving the property settlement under the proposed changes, she would struggle as she had already used her lifetime $500,000 non-concessional contribution (NCC) limit.

“So she’d be restricted to $25,000 a year in concessional contributions (CC),” he said.

“They’re going back to rewrite their strategy and this is also going to really affect the family because the house was going to be held by the parent that had the kids so they didn’t have to move.

“Now they’re going to have to sell the house and split the super 50/50 as the standard strategy going forward because neither of them will want to be in a situation where they can’t get money back into superannuation in retirement.”

Also during the breakfast forum, delegates raised concerns about client scenarios where the couple had made joint contributions via the husband, which exhausted their lifetime NCC, however, there was no way for the ATO to go back and apportion contributions.

“So it actually affects people who have already done their strategies,” Shorte added.

Another issue that emerged as a result of the proposed $1.6 million cap on pension-phase balances was whether gearing in retirement would become a suitable strategy.

A delegate suggested: “It’s horses for courses – you wouldn’t do a blanket approach to it, but there would be clients who it would be appropriate for.”

One of the strategies that could come out of the super changes involved segregating the actual assets in the fund, Shorte revealed.

“Do we segregate the funds going forward to make sure that the high-growth assets are kept in pension phase?” he said.

“Bearing in mind that as you get older, those minimum pension amounts can be a very significant amount, so you still need to have cash flow to pay out the minimum pension.”

SMSF Association chair Andrew Gale said the peak industry body would work closely with the government and policymakers to deal with the issues raised during the chapter breakfast.

“Our two broad objectives at this stage post-budget are to maintain confidence in the super system and to be having the discussions primarily behind closed doors about some of the changes, especially on the CCs and NCC changes,” Gale explained.

“I think the immediate aftermath of the federal budget was a lot of alarmist and negative comment in the media, and a lot of misinformed comments.

“Part of our role, as well as yours with your clients, is getting the balance right between some of the changes, which obviously aren’t as advantageous pre-budget, but if we put things into perspective, superannuation is unambiguously still, by far, the best way of accumulating funds for retirement.

“We need to maintain that perspective, notwithstanding the fact that we don’t like some of the changes.”

Meanwhile, the SMSF Association today announced prominent academic professor Deborah Ralston would join its board of directors on 1 July.

Ralston previously worked at the Australian Centre for Financial Studies as executive director from January 2009 to July last year.

She has held a number of leadership positions at Australian universities, and has been a researcher and recognised thought leader in financial services, with a particular focus on financial regulation, superannuation, innovation and commercialisation.

“Her capabilities, experience and intellectual rigour are strongly aligned with many of the imperatives in the association’s 2016-20 strategic plan, including sound long-term public policy being informed by robust research, high professional standards, education for both professional members and SMSF trustees, and innovation,” Gale said.

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