SMSF members in accumulation phase with share market-linked assets that have decreased in value can shift them into pension phase to maximise those they hold under the transfer balance cap, a technical specialist has noted.
CFS head of technical services Craig Day said negative returns could be a useful tool for people who are looking to draw a pension and may have limited space under their transfer balance cap, particularly where that was set at a lower level in the past.
“Remember that when we commence a pension we get a credit to our transfer balance cap for the commencement value of that pension,” Day said during a recent adviser briefing.
“So if you had a client that started a pension right in the teeth of the COVID pandemic, which might have been very brave, it was locked in at $1.6 million, but the current account balance might be sitting up around $2 million for instance.
“They don’t get any credits or debits for an increase or decrease in value, so the transfer balance account value for that client is currently $1.6 million.
“They have also got an account-based pension for $2 million, but they have not exceeded their transfer balance cap because their transfer balance account value is $1.6 million.
“We can think about that in terms of what happens when we have a market downturn.
“If they are in an SMSF or any sort of super fund where they can transfer the actual assets across into the pension phase, that may allow them to transfer more assets and when they increase in value, they get the benefit of that, but are still not exceeding their transfer balance cap.”
