Everyone with a superannuation account needs to pay careful attention to the recent Budget announcements in relation to superannuation. The proposals are potentially game changing and the right financial advice could make a significant difference!
As most retirees do not spend all of their superannuation before they die, there are important things that they may need to consider.
Most retirees may not properly understand that there can be significant tax paid on superannuation death benefit payments when superannuation monies are eventually paid to non financial dependents: ie adult children. This is now an even more important issue as the Government has proposed removing superannuation anti detriment payments.
Fortunately, many retirees may still have an opportunity to restructure their superannuation and allocated pensions to substantially reduce any tax on superannuation death benefit payments.
Consider the following example:
A retiree couple, Peter and Jenny who between them have $1,000,000 in allocated pensions (Peter $700,000 and Jenny $300,000). They have each consumed $200,000 of the proposed $500,000 lifetime personal contribution cap. Within their two allocated pension accounts, $800,000 is defined as “taxable” and let’s assume they are each eligible to contribute $300,000 to superannuation. Peter and Jenny have three adult children.
If Peter and Jenny do nothing and the Budget proposals are passed in their current form then a significant amount of tax will be paid when their superannuation is eventually paid to their beneficiaries (ie their three adult children). When they both pass away, assuming they still had $700,000 in allocated pensions and $560,000 was “taxable”, there could be tax payable of up to $84,000.
If Peter and Jenny sought advice and are eligible to reorganise their allocated pension affairs through a re-contribution strategy they could potentially ensure a substantial reduction in tax payable when benefits were eventually paid to their adult children. Importantly, Peter and Jenny might end up with two allocated pension accounts each to optimise the long term strategy.
There are many hypothetical’s that need to be considered and analysed but the broad message is clear. The Government has firm ideas on what they would like to do with superannuation to make it sustainable for the future and retirees should seek financial advice to optimise their situation.
HOT TIP: The need for financial advice has never been greater, so contact The Financial Advice Shop without delay to arrange a cost effective Financial Advice Health Check to ensure you understand all of your future superannuation options.
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