Superannuation lump sums neglected
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Financial planners should use their client’s superannuation to start a pension for their clients and tax those payments as lump sums to reduce their tax payments, according to the principal of Heffron, Meg Heffron.
Speaking at the Self-Managed Super Fund Professionals’ Association of Australia conference, Heffron said most people don’t take lump sums because they want to start a pension. But then they mistakenly believe they are locked into taking out a minimum payment every year that will be taxed as a pension.
Heffron said you could still start a pension, work out a minimum payment and elect to tax that payment as a lump sum.
“In today’s environment, [lump sums] are something of a forgotten animal. But a lump sum, particularly for someone between 55 and 60, is still a really useful thing,” she said.
Heffron said that the Superannuation Industry Supervision Act (SIS) informed a holder of a super account how much superannuation they could draw out, while the Tax Act informed them how they could tax it — but the two pieces of legislation “didn’t talk to each other”.
Nothing in SIS said that a payment could not be taxed as a lump sum, including superannuation payments, Heffron said.
The holder of a superannuation account could save up to 14.5 per cent in tax if they taxed their super payments as a lump sum, paying only 16.5 per cent in tax instead of 31 per cent as a tax on pension payments, she said.
However, Heffron warned that planners needed to make sure that the holder of a super account had unrestricted non-preserved super benefits, elected to receive the payment as a lump sum before the payment was drawn, and kept the pension payments ongoing.
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