Work-test-led strategies unique

contribution strategies

Contribution strategies for people aged between 67 and 75 are different and advisers need to consider several matters before recommending them.

A technical manager has warned advisers to be wary of the unique nature contribution strategies triggered by the changes to the work test rule possess before deciding whether they are suitable for clients.

Speaking at the SMSF Association Technical Summit held on the Gold Coast last week, Colonial First State head of technical services Craig Day told delegates: “When you think about putting a strategy in place for clients utilising these rules, it actually starts to get complicated pretty quickly.”

The reason behind this observation is these clients will tend to be in an older age demographic. This most likely will mean the strategies involved will not be as straightforward as, for example, making a contribution from the sale of an asset and subsequently commencing a pension, or implementing a recontribution strategy from the accumulation phase of an SMSF, Day added.

“This group of clients probably is already retired. So all of a sudden we’re not just pulling a lump sum out of the accumulation phase and putting it back in. What we’re [probably going to be] doing now is commuting a pension,” he noted.

“That’s where it starts to get more complicated because there are superannuation rules around when you can commute [a pension], including an account-based pension, and we’ve got to make sure we satisfy those.”

He pointed out practitioners also need to consider the relevant tax rules, such as determining when a pension actually ceases and if a full commutation is needed when the commutation request is lodged.

“[Further] we’ve got to understand the pension rules for when the money goes back [into the fund] because I can’t just shove it back into the same account, I’ve got to set it up in a different account and what does that mean for the client,” he said.

The effect on a client’s eligibility for social security benefits is an additional consideration and this could have significant ramifications, he noted.

“So there are potentially a lot of clients out there that yes have a self-managed super fund who may be entitled to a part [age] pension payment and to implement [a particular contribution strategy could] potentially cost them their age pension or a concession card,” he said.

“And if your clients are anything like my parents, that aren’t on the age pension but have a Commonwealth Seniors Health Card, woe betide anyone that gets between that card and them.”

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