Despite the complexity and multiple challenges presented by the draft superannuation legislation, the introduction of deferred annuities should provide SMSFs with some control and flexibility over their retirement income.
“The [draft legislation], on a positive note, said the government would introduce a new concept of a retirement product or retirement income stream where deferred annuities, or at least deferred pension products, will be able to qualify for tax concessions,” SMSF Association head of technical Peter Hogan said at the recent Spring Financial Group leadership series event.
“We’ve been asking for and waiting for this over the last 25 to 30 years.
“So it’s finally happened and it will be possible to take part of your capital, whether you retire, invest it into an income stream, but that income stream may not start for another 15 years.
“You can nevertheless invest that capital in your fund and pay no tax at the fund level on the investment income and then kick off an income stream in 15 years’ time and that will qualify for a pension.”
In the May 3 federal budget, the government announced plans to remove the tax barriers for the development of some new retirement income products by extending the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities.
However, Crystal Wealth Partners executive director Tim Wedd said that was only one piece of the puzzle and further measures were needed to create greater flexibility, particularly for SMSFs.
“This will be good news for retirees generally as it will broaden, hopefully, the range of retirement income stream products in the market,” Wedd told selfmanagedsuper at the time.
“The review of retirement income streams was also released by Treasury post-budget, which provides some insight into this measure as it may be developed.
“Essentially, the measures target lifetime products that can involve immediate and/or deferral of income payments within the product design, provided they follow a set ‘capital depletion’ framework in a straight line based on life expectancy from time of purchase.”