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New taxes on Pensions - Re-contribution Strategy

Discussion in 'Superannuation, SMSF & Personal Insurance' started by greg999, 16th Apr, 2013.

  1. greg999

    greg999 Member

    Joined:
    29th Mar, 2012
    Posts:
    9
    Location:
    Sydney, NSW
    Hello to forum members,

    Regardless of which political party is running the country after 14 Sept 2013 it seems highly likely that tax-free super pensions will be milked shortly.

    Do readers think that this means we should all invoke the Re-contribution Strategy to increase our tax-free component? - if we haven't already done so. Of course this may prove quite futile, if for example the future government simply puts a tax on all pension investment returns. What is the likely scenario?

    Regarding the Recontribution, I have a question about doing a partial pension commutation and commencement of a single “new” pension with the rolled back funds. What happens to the assets that are not commuted? Do they have to be sold? or re-valued?

    Thankyou for your excellent forum,
    Greg999
     
  2. NickM

    NickM Co-founder Staff Member

    Joined:
    20th Jun, 2005
    Posts:
    321
    Location:
    Sydney
    Hi Greg
    A recontribution strategy is an effective estate planning strategy.
    If you were to die then the tax free components retain their status when paid to non tax dependants.
    I would continue a recontribution strategy regardless of the proposed legislation.

    Your question regarding the assets is not relevant if you are running an unsegregated fund. ie an actuary determines the tax free %.

    Most funds would be accounted on this basis so the individual assets themselves are not actually commuted.

    cheers
    Nick
     
  3. greg999

    greg999 Member

    Joined:
    29th Mar, 2012
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    Location:
    Sydney, NSW
    Thankyou for your reply Nick,

    Two points though:
    1. If tax were re-introduced on pension earnings or pension payments, that could be a lot of money. Imagine paying 15% tax on pension payments from age 60 to age 80. This may prove to be the elephant in the room, and assuming our (possibly younger) spouses survive us then death tax may never become an issue.

    2. Actually our fund assets are segregated. Does this affect whether or not the assets are commuted? I must say I don't understand this point.

    Regards,
    Greg999
     
  4. NickM

    NickM Co-founder Staff Member

    Joined:
    20th Jun, 2005
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    Location:
    Sydney
    Hi Greg
    the proposed tax is at the fund level. Legislation will not be introduced until after the Sept election so I wouldnt be too concerned at this stage until we see the detail.

    as for your segregated asset question, you would be best to discuss with your accountant. He would look at your trust deed and your pension documentation as they may impact the answer you are seeking. I would say generally if a specific asset is funding a specific pension and that pension is commuted then the asset has to also be commuted. ie the income it generates would revert back to being taxed at 15%.
     
  5. greg999

    greg999 Member

    Joined:
    29th Mar, 2012
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    Location:
    Sydney, NSW
    Thanks Nick,

    Regards,
    Greg