Ask the Expert: Kicking goals with clever pension planning
Question 1
Where a reversionary option is in place for super, how is it treated in respect of the “available cap space” of the surviving spouse?
When you have a superannuation pension you can nominate a “reversionary”. This means that the pension automatically “reverts” to the nominated person upon your death (assuming the nomination was done correctly, and the other person is still alive).
This has the following main advantages:
- Super funds process death benefits much faster when it’s reversionary than any other type of death benefit nomination. (see graph below);
- Less paperwork after death, which can be a relief as there are no doubt many other items to be dealt with by your beneficiaries;
- In relation to the survivor’s “transfer balance cap”, they have 12 months from the date of death before it is counted. This gives them plenty of time to get things in order and re-arrange their affairs if required.
Question 2
Hi Craig, I am reviewing my super fund. I have been with Media Super but am uncomfortable with the merger with CBUS. I see that ASIC has sued CBUS over delays in paying death and disability claims. If compensation and fines are to be paid, where does the money come from to pay it? Does it eat into member profits?
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I have used the Unisuper and ATO websites for a fund comparison between the ART, CBUS and Unisuper growth funds and the results don’t match up. Should they give the same results?
Some financial commentators say a large super balance can be more expensive to keep in a fund due to fees being a percentage of the balance. They sometimes suggest a Wrap or SMSF once super is over a certain balance.
But for now, I am looking for a fund that gives the best returns with low fees and, hopefully, an income stream tax refund on setting up a pension fund. I note that Unisuper does not give members the tax refund or bonus. I am a couple of years off setting up a pension fund.
Yes, unfortunately, there have been funds that have provided very poor service with processing death benefit claims and other service-related issues.
As you point out, CBUS is one of those funds identified and Media Super recently merged into CBUS.
These funds have grown so fast that their level of service hasn’t kept up. Historically, they focused on the two things you identified, good returns and low fees. Now that they are on the regulator’s radar, you would expect them to put more focus on customer service.
In relation to fines, the funds would have to pay this from their operation reserves – which most likely ends up being funded from members.
The funds you have nominated have all performed well, have low fees and are well-rated by research groups like SuperRatings and Chant West.
The ATO Super-comparator tool is a good place to start, then you can use comparator websites. Note that ASIC’s Moneysmart has tips on using these.
Funds have different fee schedules. Some charge flat fees and others include percentage-based fees; this is more common when you get into a pension.
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Industry funds are very competitive on fees and you would need a substantial amount of funds and low-fee underlying investments to get a better deal.
A retirement bonus is one factor to consider. However, there are many others.
Different super funds have different tax arrangements. My understanding is that UniSuper shares the potential tax savings from people moving to pension across all super members. You’ve likely benefited from this approach over your time as a member, rather than having a lump sum at the end.
Question 3
Hi Craig, I have $30,000 left in a bring-forward non-concessional contribution arrangement that I want to take up. I also have the regular $30,000 concessional contribution cap. I want to contribute a combined $60,000 this year.
However, I will only need to claim tax rebate for a portion of the concessional contribution. Is this OK, or, am I obliged to claim the full amount contributed under concessional contribution cap?
Thanks and kind regards, George
Hi George, it’s entirely up to you.
Yes, you can contribute $60,000 to super and claim $30,000 as a tax deduction. Claiming it as a deduction makes it a “concessional contribution”.
The other $30,000 would be a non-concessional and complete your bring forward contribution.
Be aware that if you contribute $60,000 and do not claim $30,000 as a tax deduction, you may exceed the non-concessional contribution bring forward rule and penalties may apply.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
