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Plan for legacy pension switch now

legacy pension conversion

SMSF advisers should be speaking with clients about legacy pension conversions so they can take action and avoid a large tax bill for their estate.

SMSF advisers with clients holding legacy pensions should alert them of the two-year conversion window starting in mid-2022 and consider plans that will not leave their estate with a large tax bill from an unconverted pension, an SMSF legal specialist has warned.

DBA Lawyers special counsel Bryce Figot said reserves held within legacy pensions, such as complying lifetime, fixed-term and market-linked pensions, must be cashed out as soon as possible after the death of the pension holder and under tax law as an allocation to super can only be received as a concessional contribution.

Figot noted that where legacy pension reserves were sizable and in excess of the concessional contribution cap, the estate of the pension holder would have large sums of assessable income and this could be a problem for advisers who were aware of this issue but did not address it with clients.

“If we have clients with these pensions and then say there is no rush as the window is open for two years from 1 July 2020, what will happen if they die on 2 July 2022?” he said during a recent webinar.

“The estate may have massive assessable income and worse still the beneficiaries of the estate may question if the pension holder’s adviser had been acting promptly or whether it could have been restructured before 1 July 2022.”

He said it was urgent that advisers considered the legacy pension conversion opportunities available to clients from 1 July 2022 even though the bill enacting the changes had not yet been released.

“When we do receive the bill, advisers are going to have to get on top of this as soon as possible and contact relevant clients,” he said.

“It could be too late if they die on 1 July or 2 July 2022 and you haven’t advised them and left the ball in their court. This is urgent and it’s coming.”

During the same webinar, he also encouraged advisers to contact clients aged 60 and above about holding off selling their homes and to wait until April 2022 to make use of downsizer contributions changes that commence at that time.

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