Pensions, Strategy

Pension phase may become redundant

Will having an SMSF in pension phase still be beneficial if franking credit changes are introduced?

A sector strategist has suggested drawing a pension from an SMSF may no longer be necessary if Labor’s change to refundable imputation credits is introduced.

I Love SMSF founder Grant Abbott told delegates at his recent strategy session in Sydney SMSF members currently entirely in pension phase with a significant level of franking credit refunds they may be about to lose should consider abandoning their pension completely.

Abbott said this was particularly the case if the member was unhappy with having to adhere to the minimum pension drawdown payment.

He noted an SMSF trustee he recently spoke to was in this exact predicament – receiving $140,000 in franking credit refunds, having to begrudgingly draw down a minimum pension amount, with the fund having only a pension account.

“I said to him ‘you do realise that you don’t need to be in a pension anymore’. His response was ‘that’s not possible because my accountant said I have to take a pension’,” he said.

“If the Labor changes come through and you’ve got excess franking credits, why would you be in a pension because a pension is forcing you to draw down a certain amount?

“If you’ve got plenty of tax credits to wipe out and you don’t want to bring your children into the fund to utilise those credits, why be in the pension system?

“Everyone is saying this is a disaster, but if it’s going to happen, let’s move out and set up accumulation funds.”

According to Abbott, formulating strategies such as this is what advisers need to focus on if they are to help their SMSF clients through this type of policy change.

“Our job is to look at the law, predict the law and then start to manoeuvre and make changes or seek opportunities out of the law,” he noted.

“A lot of people look at the law and look at the changes and see crisis. I see opportunity and that’s where we need to be.”

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