A technical manager has warned advisers not to treat the change to the work test rule as an automatic trigger for clients to make a greater amount of contributions into their superannuation fund.
To this end, BT Financial Group technical consultant Matt Manning confirmed the entire wealth position of the client must be taken into account to make a proper assessment of how the relaxed contribution parameters can be used to their advantage.
“For many clients [the change in the work test rules] may be a little bit better than it sounds,” Manning said during the most recent BT Academy webinar held last week.
“The question I’d ask in many of those cases is [whether the client] is paying tax outside super anyway.
“By putting the money [into super] and then starting a pension, [you need to know] would they have otherwise paid tax on that amount of money being under their own name.”
According to Manning, clients who do not have many assets or monies outside the superannuation system can earn a significant amount of income without having to pay tax due to mechanisms such as the seniors and pensioners tax offset and the tax-free threshold.
“So in those instances I’d question whether putting the money into super, and [opening the individual up] to potentially the higher fee environment inside super, is worth it if they are not paying tax outside super,” he said.
“It’s great for a lot of clients who are going to pay tax anyway outside of super. [In those cases] this is an opportunity to get more money inside super.”
He stressed the biggest advice opportunity stemming from the work test changes was to implement a withdrawal and recontribution strategy to access a tax advantage for clients, particularly in an estate planning context.
“The main reason for this is if a death benefit ends up being paid to a non-tax dependant, most commonly an independent adult child, then by [implementing] a recontribution strategy we’re turning a taxable component into a tax-free component, which then saves [the client] 15 per cent tax or 15 per cent plus Medicare,” he noted.
