Compliance, Financial Planning

TBC creates puzzling advice issues

Transfer balance cap death benefits

An expert has identified advice compliance complexity resulting from the transfer balance cap’s effect on the treatment of SMSF death benefits.

The introduction of the transfer balance cap (TBC) and its effect on death benefits has raised some compliance questions around the provision of advice and has added complexity to the management of an SMSF, an accounting firm partner has said.

Evidence already exists that TBC rules are resulting in money having to exit the retirement savings system and this scenario is having compliance implications for advisers, Findex senior partner Kathy Evans said during a panel discussion at Class Connect 2019 in Sydney last week.

“[Who can give the advice] is a very good question because we have all of these rules around who can give advice from a superannuation perspective, but if that money isn’t in superannuation, do the same rules apply and who can actually give that advice?” Evans said.

She said the introduction of the transfer balance cap has accelerated the need to deal with certain death benefits situations and this has emphasised some of the more complex issues regarding estate planning.

“If we have a mum and dad superannuation fund with $6 million in it, in the past if dad passed away the money went to mum, she could leave it in super in a pension, happy days. Upon mum’s death it would then have to be dealt with,” she said.

“Now with the transfer balance cap that’s going to force money out of superannuation a lot earlier and there are issues around that.

“What type of structure is it then going to be invested in, who’s going to provide the advice around the investment, what are the assets within the SMSF?

“The SMSFs face having to pay out that benefit, so what happens if we have illiquid assets in our superannuation fund? It could be a commercial property that makes up $5 million of the fund, so how do we pay part of that out?

“So there are lots of considerations [to take into account].”

A separate session at Class Connect 2019 raised the need for advisers to provide better services regarding death benefits.

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