Indexation of the transfer balance cap

For advisers with high-net worth clients, BT senior manager, technical and regulatory Sarah Conte said the number one technical topic is the imminent double indexation of the transfer balance cap and the total super balance threshold.

On 1 July 2023, the general transfer balance cap will increase by $200,000 to $1.9 million, double the normal increase due to the high inflation rate.

Ms Conte said that clients who are yet to receive a retirement income stream and plan to start one this year may be better off delaying the commencement of the income stream until after 1 July 2023, so they can gain the maximum indexation benefit.

The total superannuation balance threshold (TSB) will also increase to $1.9 million, effective from 1 July 2023. The TSB is used, amongst other things, to determine the level of non-concessional contributions that can be made by a client into super in a particular income year, she noted.

“Advisers with high net worth clients are asking BT about how the new thresholds apply to their client’s circumstances, so they can achieve the best outcome for their clients,” she said.

The transfer of wealth

Critical financial decisions for older women in relation to the transfer of wealth is another topic that commonly arises, said Ms Cole.

Ms Cole noted that recent data shows that one in five Australians still have super within four years prior to death, with a mean balance of approximately $500,000. “The wealth transfer between couples as a result of superannuation death benefits is something that will require forensic examination,” she cautioned.

“Given the interaction of the superannuation caps, trigger events, as well as the taxation consequences, getting it wrong can be costly. “The surviving person, she said, may inherit not only their partner’s superannuation balance, but real estate and other assets as well.

“Couples will invariably have differing risk profiles, levels of financial literacy and levels of confidence about investing. Add to this the fact that, in a time of grief, making important financial decisions can be overwhelming. Financial advisers can play a critical role, guiding clients to the right outcome,” she stated.

Age pension increases

Financial advisers with clients that are not self-funded in retirement are asking questions about the upcoming increase to the Age Pension, according to Ms Conte.

The Age Pension upper thresholds are indexed in line with the consumer price index twice per year, she explained.

“With the next round of indexation due to occur on 20 March 2023, some pensioners may receive more Age Pension payments, while others may receive a part-pension for the first time,” she said.

“Rent assistance is a support payment that may be available for people who are in receipt of certain government payments. This payment is also due to be indexed on 20 March 2023.”

Increase in childcare subsidy

Ms Conte noted that parents with young children may benefit from the upcoming increases to the Child Care Subsidy (CCS) rates.

“From 1 July 2023, CCS rates will increase from 85 per cent to 90 per cent for families with a combined annual income of less than $80,000. The CCS will reduce by 1 per cent for each additional $5,000 of annual income,” she stated.

“Changes to the childcare subsidy are top of mind for working parents, with some potentially looking to increase their workforce participation, to boost the household income as the cost of living continues to rise.”

Relationship breakdowns and SMSFs

In the event of a relationship breakdown, superannuation is treated as an asset that can be split between couples, said Ms Conte.

“This involves transferring assets, usually cash, from one member of the couple to the other. Where an SMSF is involved, decisions will need to be made around whether both parties want to stay in the fund, one wants to leave, or both want to leave and wind the fund up,” she explained.

Consideration will also need to be given to which asset of the fund will go to whom or if assets will be sold and cash transferred, she added.

“Winding up an SMSF can be a minefield, and it’s no surprise that financial advisers are asking questions about the technical ins and outs,” said Ms Conte.

“There are some nuances within the rules when dealing with relationship breakdowns and splitting superannuation, and it’s a good idea to seek guidance from an expert.

“Unfortunately, the financial impact of divorce and relationship breakdowns can be very significant for women. And while it’s encouraging to see so many women wanting to take control of their finances and establish SMSFs, these considerations should be made earlier rather than later, especially if the SMSF members are couples.