Act fast for clients turning 65

TBC indexation

SMSF advisers need to act fast to help clients turning 65 before 1 July make the most of the indexation of the Transfer Balance Cap to $1.9 million.

SMSF advisers with clients turning 65 before the indexation of transfer balance cap (TBC) to $1.9 million on 1 July can still help them access the full TBC, but will need to direct them in the course of specific actions, according to an SMSF technical expert.

SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said SMSF clients in receipt of a transition-to-retirement (TTR) pension may be caught out by turning 65 before 1 July as they will meet a condition of release and miss out on the TBC indexation while being locked into the current TBC.

“These dates are important because we see clients with a TTR cruising along and they ring up saying they recently had their 65th birthday and the trouble is it’s not a happy birthday because the balance of the TTR is now counted against the $1.7 million transfer balance cap,” Colley said.

He gave an example of a fund member, Rex, who is aged 64 and will receive a $2.1 million TTR pension at age 65 on 1 May.

“The issue for Rex is how to survive between 1 May and 30 June, but he does have an opportunity beforehand to commute that TTR and because he doesn’t meet a condition of release he can commute the pension, roll it back into accumulation phase and the TTR will not be counted against his TBC,” he said.

“However, on the day Rex turns 65 he needs to have done the commutation otherwise he will meet the condition of release, and if he has, he can take a series of lump sums equal to the amount of the pension that he was receiving as they also won’t be counted against the TBC.

“Perhaps then on 1 July, Rex can commence an account-based pension with a balance of $1.9 million instead of being limited to $1.7 million.

“If he didn’t do anything before 1 May, Rex could still get money to live on, but on 1 July he has a new account-based pension and has the $1.9 million indexed amount counted against his TBC.”

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