Future tax changes to impact pension rollback

Many SMSF advisers are grappling with which of their clients’ pension accounts to roll back, yet any further taxation changes made by the government will have a significant impact on the final decision, an industry SMSF lawyer has warned.

During the latest DBA Lawyers SMSF Online Update, director Bryce Figot provided the example of an SMSF worth $3.2 million with the client receiving two account-based pensions from it: one pension is worth $1.6 million, comprised of a 100 per cent taxable component, while the other is worth $1.6 million with a 100 per cent tax-free component.

Under the incoming super changes, one pension will need to be rolled back into accumulation phase as it will exceed the $1.6 million transfer balance cap.

A poll of webinar attendees revealed 25 per cent would roll back the taxable pension, 25 per cent would roll back the tax-free pension, while 50 per cent indicated that it would depend on several factors.

“What does it depend on? It’s not a theoretical question because I dare say it’s a question that a lot of people will be grappling with,” Figot said.

“It most definitely depends on age, as well as the nature of dependents, if any.”

Figot explained that with many of these scenarios, the name of the game was to ultimately maximise the tax-free component.

“But the other thing we have got to be mindful of is what if the government changes the regime to taxation of super again?” he warned.

“No one is going to rule that out.

“The budget is just around the corner and we’re not expecting any changes to super but you never quite know.”

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