“That can cause some issues with liquidity when you pay that commutation out,” Mr Ellem said.

Fortunately, SMSFs will generally have the option to pay the death benefit out as in-specie transfer of assets, he added.

Mr Ellem said it was something practitioners should be flagging with clients, especially when they are discussing the client’s estate planning.

SMSF practitioners should also ensure clients are aware that the balance transfer cap is percentage based rather than amount based.

“You’re going to have to keep track of clients when they commence pensions of what their personal transfer balance cap is, because that’s not necessarily going to equate to the general transfer balance cap,” he said.

Mr Ellem explained that if an individual has used their full $1.6 million transfer balance cap, and the general balance cap amount is later indexed to $1.7 million, the individual will not be able to contribute a further $100,000 because their balance cap has already been 100 per cent used.