THINK ABOUT SETTING UP A FAMILY SUPER FUND.
The new superannuation rules now allow family members to combine their superannuation balances to get greater scale over fees and administration of their affairs.
A simple concept that is gaining ground is for members in the over 60's age bracket to invite their children say in their 40's who may have children of their own to join their self managed super fund accounts together.
This strategy can have huge advantages for Estate planning as well as helping their adult children meet some of their immediate living expenses such as education expenses and mortgage payments, by paying tax free dollars from their pension accounts to their adult children now rather than wait until they pass on. For full details on how to set up a family fund contact our office on familyfund@selfmanagedsuper.com.au
From 1 July 2007, a new simplified set of minimum pension standards came into effect. Satisfying these rules will ensure the tax exemption for pension payments for recipients age 60+ and the tax exemption for the underlying pension assets.
The new minimum pension standards are outlined as follows:
Ø No maximum income payment (except for transition to retirement pensions)*.
Ø No commutation restrictions apply (except for transition to retirement pensions)*.
Ø An amount or percentage of the pension cannot be prescribed as being leftover when the pension ceases (e.g., no residual capital value (RCV)).
Ø The pension can only be transferred on the death of a pensioner.
As a continuing (reversionary) pension paid to a person who is a dependant under both the SIS and Tax Acts, or
As a lump sum where paid to a non-tax dependent such as an adult non-dependent child or the estate.
Payments of a minimum amount (shown below) must be made at least annually.
The minimum annual payments
Age 55-64 4% of account balance. Important note, if you are still working then you will need to meet a condition of release under a transition to retirement pension which requires you to withdraw a maximum 10% of your account balance each year. Age 65-74 5% of account balance. Age 75-84 6% of account balance. Age 85-94 10% of account balance. Age 94+ 14 % of account balance each year. Maximum only applies to pensions commenced under transition to retirement release condition. It is proposed to cap the maximum annual income payment at 10% of the account balance as at 1 July each year. This is to prevent the excessive dissipation of assets. It is unclear when the 10% cap ceases but one would assume it would cease when the person retires or reaches age 65. The existing commutation restrictions will continue to apply for TTR(transition to retirement) pensions.
Any existing pensions commenced prior to 1 July 2007 in accordance with SIS Regulation 1.06 will be deemed to meet new minimum pension standards. It is also expected that guaranteed lifetime pensions provided on an arms length basis (e.g., annuities provided by a life office) will also meet minimum standards.
Note: The Government does not intend to increase the ability for people to commute a complying pension.
Ø Note: Existing allocated pensioners will be allowed to transfer to the new pension products after 1 July 2007 without the need to commute their existing pension.
To compensate for the removal of the Assets Test exemption for complying pensions while also increasing the incentive to save, the Government has proposed to halve the pensioner Asset Test taper rate as follows:
Current taper is $3.00 per $1,000 of assets. The proposed is $1.50 per $1,000 of assets.
The practical impact of that is many more super members will receive at least some age pension.
Ø the cut out points for eligibility has been extended to:
Ø $494,000 for single homeowners; and
Ø $783,500 for couple homeowners.
Ø This means relatively wealthy individuals could obtain some age pension when you consider the value of the family home is also excluded from the Centrelink means testing.