Planners will need to pay close attention to getting the planning around pension balances right through to 30 June, 2017, regardless of the election’s outcome on July 2, according to the SMSF Academy managing director, Aaron Dunn.
In a recent analysis, Dunn examined the differences between both the parties and their post-retirement policies. He also noticed that more attention was paid to how the fund taxation on earnings would apply while there was less talk on the impact of how the “proportioning rule would operate for each policy and how this impacts in the long-term when paying a death benefit to one or more non-tax dependants.”
In his comparison of post-retirement policies, he took a closer look at the contrast of the Coalition government support for an introduction of a ceiling on the purchase price of account based pensions against Labor’s proposed policy aimed at establishing a $75,000 earnings threshold per pension member on fund earnings, with any earnings above this threshold being subject to tax at 15 per cent.
This led to a conclusion that over a 30-year time horizon with the super funds showing various earning rates between two per cent and 10 per cent, a rate of return of around seven per cent provided a comparable tax outcome for both policies.
However, above this mark, a Labor Government will benefit from the earnings threshold approach against the Coalition’s transfer cap amount.
He also stressed that the Labor’s policy would deliver a better outcome when it came to the impact on a member’s taxable component as the Coalition’s proposed measure would require to rollback part the existing pension to accumulation phase.
“This means that the proportioning rule will no longer apply to this benefit, with all future earnings applied to the taxable component rather than proportionately.”
“This is important, because as you can see over the 30-year projected time period, the greater the rate of return derived by the SMSF, it is the Coalition’s policy that generates a greater taxable component. When paid to a non-tax dependant, this means a greater level of tax revenue generated from the death benefit (tax at 17 per cent if paid directly to beneficiaries or 15 per cent via the deceased member’s estate). In contrast, it appears that Labor will not require any change to existing pensions, therefore having no impact on how the proportioning rule will continue to apply to income streams,” he said.
He added that given the Coalition’s proposed changes around the lifetime non-concessional contribution (NCC) cap of $500,000, the $1.6m pension transfer cap amount and the removal of anti-detriment, the outcome of the taxable component could be argued as a deliberate one as they focused their super policies towards utilising super for retirement and not to benefit as an estate planning tool.
