Partial pension commutations have the potential to become more common as part of a strategy to comply with the transfer balance cap (TBC), the director of an advisory firm has said.
Cooper Partners director Jemma Sanderson told delegates at the recent Tax Institute Superannuation Conference in Sydney she predicted this practice might become more widely used as pension commutations work towards reducing an individual’s TBC.
Specifically, the strategy would be for people who have a retirement income stream and are looking to draw down more than their required minimum amount, Sanderson said.
“If you had more than $1.6 million in super, it’s probably not going to be an attractive thing to do, but for those people who have got less than $1.6 million and their concern is that when they pass away that their spouse is not going to be able to keep as much as they can in the super fund, or they want to keep as much as they can in pension phase, that’s when people might look to partially commute if they take out more than their minimum pension,” she noted.
Before considering this course of action, advisers and their trustee clients needed to be conscious of the associated reporting requirements, she warned.
“So if mum and dad are taking monthly payments out of $20,000, and their minimum is $10,000, then [you need to know] how are you going to actually report that,” she said.
“If there is a partial commutation, there is paperwork required with respect to that.
“It’s a transfer balance debit that you’ve got to report within 10 days after the end of the month of the transaction.
“So you can see there are lots of other issues that can come about with that strategy.”