The superannuation changes that have come into effect from 1 July 2017 are complex. Much has been written over the last 8 months since the changes were announced dealing with the detail of the legislation. This article summarises 5 things you should know about super and death under the latest iteration of the legislation.
1. From 1 July 2017, there will be no death benefit period. The previous restrictions on being able to move death benefits between funds no longer apply, therefore the recipient can move a benefit, which will retain its character, without having to wait out
the death benefit period.
2. From 1 July 2017, a superannuation death benefit must be cashed either by way of a pension or lump sum withdrawal. It cannot be commuted (internally transferred or rolled over to another fund) back into an accumulation balance.
3. From 1 July 2017, a Transfer Balance Cap (TBC) applies to the amount of superannuation that can be held as a retirement phase income stream (pension) by each recipient. This cap is $1.6m at present. Therefore, if you receive a death benefit that causes
you to exceed this cap, to avoid the penalties associated with exceeding the cap, you will have to:
• Commute your own pension first to leave the maximum allowed
• If still above the limit, withdraw as much of the death benefit as will reduce the balance to the limit
4. There is a grace period allowed under the new legislation if the death benefit is left as an auto-reversionary pension. An auto-reversionary pension means that the superannuation fund trustee has no discretion over the method of payment or the recipient
of the death benefit. This pension will not count towards your cap for 12 months from the date of death. If the death benefit is not auto-reversionary it will count towards your cap as soon as you are entitled to be paid the pension. This is required
to be as soon as practicable and is usually much less than 12 months.
5. The value of the pension will also be affected as an auto-reversionary pension and will have a value of the account based pension balance on the date of death whilst a non-auto-reversionary pension will have a value of the account based pension balance on
the date the pension is payable.
None of the above suggests that there is a standard solution to estate planning for superannuation interests. Each person will have to take into account their own personal circumstances and plan for their desired outcome.