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Be clear on TBA pension impact

The different operations of pensions passed onto a beneficiary can be confusing and SMSF members must understand how the will impact their transfer balance account.

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Trustees and advisers still may not be completely clear as to how the decision to make a pension reversionary or not will affect their transfer balance account (TBA) with regard to the commencement date of the income stream subsequent to the original recipient’s death, according to an SMSF specialist.

SMSF Alliance principal David Busoli highlighted the importance for practitioners to understand the different timeframes applicable to each pension option and the impact it will have on the death benefit recipient’s  TBA.

“A reversionary pension must lodge a transfer balance account report (TBAR) showing the reversionary pensioner as the recipient from the date of death, however, it will only count towards the reversionary beneficiary’s TBA after a year,” Busoli noted.

“Relevantly, earnings performance or the receipt of a life insurance payout by the pension account will not affect the member’s transfer balance cap as it is measured at the date of death.

“In contrast, a death benefit pension commenced from a non-reversionary pension is treated in the same way as if it was paid from the deceased’s accumulation account.

“Investment earnings and life insurance proceeds will be included in the recipient’s TBAR and counted against the recipient’s transfer balance account from the date they begin receiving the pension.”

He added understanding this distinction can be beneficial as it provides trustees and practitioners with the opportunity to address any potential breaches of the transfer balance cap.

“Be careful though, [a reversionary pension] will count automatically [in a year], so if this will cause a breach of the member’s transfer balance cap, it should be dealt with within the 12-month period,” he acknowledged.

He also noted some superannuants may misunderstand how the different pensions impact their total superannuation balance (TSB).

“The treatment for total super balance purposes is different. A reversionary pensioner’s TSB is increased by the balance of the pension from the date of death,” he said.

“The TSB, which is measured on 30 June, will include the pension balance at that time, along with any impact from investment performance and life insurance proceeds.”

 

 

 

 

Todd Wills
October 24, 2024
smsmagazine.com.au

 


David Forrest Download David's Adviser Profile

David Forrest

Director
BEc (Acc), MBA, CPA, FFin

David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.

David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.

Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.

David maintains a strong personalised client service focus, providing tailored solutions for clients.

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David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846

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Michelle Forrest

Business Finance Manager
B Bus (Acc), CPA

Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.

Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.

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Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.

Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.

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Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.

Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.

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