Pensions, SMSF, Superannuation

Injury settlements no threat to caps

Personal injury settlement

SMSF members receiving a personal injury settlement payment should not be concerned it will impact their TBC or TSB and reduce their ability to make other contributions.

SMSF members receiving a personal injury settlement payment should not be concerned that contributing it to their fund will impact their transfer balance cap (TBC) or total superannuation balance (TSB) and reduce their ability to make other contributions.

BT technical consultant Tim Howard said the reason for this was a personal injury settlement payment made as a result of the recipient being unable to work could be converted into an account-based pension (ABP) without being counted toward those caps.

Speaking during a recent webinar, Howard gave the example of Brad, who received a structured settlement payment of $1.8 million that was added to his current accumulation interest $200,000 for a TSB of $2 million, from which he started an ABP in the 2022 financial year.

“What we need to know if we’re looking to make non-concessional contributions (NCC) for this financial year is what is his TSB as at 30 June 2022,” he said.

“When we work it out, the TSB takes into account the value of the TBC and it’s just a modification of the TBC factoring in the current value of the ABP.

“If we go to the TBC side of things, when we move an amount that is a personal injury payment into retirement phase, that is initially a credit event to our transfer balance account.

“However, since it is in relation to a personal injury payment structured settlement, we also get a debit event equal to that amount at the time of transfer to retirement phase.”

He noted that since the credit and debit happen on the same day, and a transfer balance account balance is measured at the end of any particular day, since Brad has never moved any money into retirement phase, his transfer balance account highest-ever credit will be zero.

“He would benefit from full indexation of the unused portion of his cap space, which is 100 per cent going into 1 July 2023, and in this simple example, have a personal TBC of $1.9 million going forward into next year,” he said.

He added the personal injury settlement would also not impact Brad’s TSB as it was reduced by the value of his structured settlement amount.

“That would mean going forward that he has plenty of scope, depending on his age and his contribution history, to make non-concessional contributions this financial year or perhaps also into next financial year,” he said.

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