Changes to Your Superannuation Fund Deed by 30 June 2017

From 1 July 2017, pensions need to be supported by no more than $1.6 million of assets and tax changes would encourage almost all transition to retirement pensions to cease.

The measure will require accurate commutation documents prepared prior to the event, which is midnight 30 June.

Commutations will need to be effective from the beginning of 1 July 2017 but various other tax measures (in particular the provisions allowing the resetting of the cost base of assets) will require pensions to continue until midnight 30 June.

Furthermore, account balances will not be known for some considerable time afterwards.

In addition, the legislation is worded differently depending on whether the fund has been claiming the proportional or segregated asset exemption. Furthermore, the ATO has now set out what it expects on commutation documentation, all of which means for those affected:

• fund deeds should be amended; and
• commutation documents should be carefully prepared.

We have been awaiting the release of all of the ATO’s statements on the new law which has now occurred, meaning we can now be confident our super fund Trust Deed addresses both the legislative changes and all the ATO’s administrative guidelines.

New Deeds

Whilst most deeds have broad administrative powers, the actions which many trustees will be required to take should be specifically authorised.

For example, our deed contains provisions dealing with:

• prospective pension commutations to meet the ATO guidelines on commutations;
• the “rollback” of all or part of pensions to deal with changes to transition to retirement pensions, and the $1.6 million transfer balance cap;
• transition to retirement pensions where a condition of release is met meaning that paperwork is not required to have the pension convert to “account based” but giving flexibility to agree otherwise if that is seen as the best course of action (i.e. to, say, prevent a transfer balance credit arising);
• pension provisions designed to give flexibility in dealing with reversionary pensions which may otherwise inadvertently trigger an excess transfer balance credit.

As can be seen, the amendments are most important for those who have transition to retirement pensions or pension accounts which will, or may likely exceed, the $1.6 million transfer cap.

This includes couples who, together, have exceeded $1.6 million in superannuation investments.

Old Deeds

Many deeds will have been comprehensively replaced some time ago.

The number of changes (primarily legislative but also by case law such as the unfortunate decision of the Supreme Court of Queensland which held that a binding nomination in favour of “the trustee of my estate” was invalid) is such that older deeds should be replaced.

Accordingly, the recommendation is for all clients to update their deeds, or (if recent) have them reviewed for currency.

Estate Planning and Binding Nominations

Many clients would also need to review their estate planning, as a pension being paid to the survivor now has additional limits due to the transfer balance cap.

These are longer term considerations, but nevertheless should be considered sooner rather than later.

Costs

Please contact us in relation to the above in particular to deed updates and commutation documentation, noting of course that instructions received in bulk will attract discounts from our standard fees.