A technical manager has reminded advisers to be cognisant of the completely different treatment of death benefits for transfer balance cap (TBC) and total super balance (TSB) purposes.
“For example, if death occurs on 12 October 2022 and the death benefits are received as an income stream, then we look at two completely different [timelines] for TBC and TSB,” BT Financial Group technical consultant Matt Manning told attendees of the latest BT Academy technical webinar.
With regard to the TBC, Manning said there are two timeframes of which advisers need to be aware.
The first applies to circumstances involving a reversionary death benefit and he used a payment of this kind made on 12 October 2022 to illustrate his point. Here the death benefit would not be credited to the recipient’s TBC until 12 October 2023 and would be valued as at the date of death, he said.
If the death benefit is not the result of a reversionary arrangement, it would be included against the recipient’s TBC at the date of payment and the benefit would be valued as at the date of payment, he said.
“That certainly illustrates the huge advantage for anyone that is going to be affected by the transfer balance cap after death of having the reversionary nomination. [That is because] not only do we get a value we can hang our hat on, the value as at date of death, but we can essentially have 12 months to fix it up, which we can even use to our advantage by effectively delaying when we do take that requisite debit event to be able to stay within the beneficiary’s transfer balance cap,” he noted.
With reference to the TSB, he pointed out using the same example that, unless a defined benefit reversionary pension is involved, the death benefit will be assessed against the beneficiary’s TSB at 30 June 2023 and this will affect their ability to make non-concessional contributions and carry-forward concessional contributions.
“So in this case, 12 October 2022 is [when] the death [occurred]. Even if it’s a reversionary account-based pension and even though the transfer balance cap credit event won’t occur until 12 October 2023, it will still count for the total super balance as at 30 June 2023,” he said.
“It will therefore be assessed for the eligibility for [non-concessional contributions] for [the] 2023/24 [income year] onwards, but not the current 2022/23 financial year because we go back and look at the 30 June 2022 balance and that won’t include the death benefit pension [and the] death hasn’t occurred at that point in time.”
