Self-managed superannuation fund (SMSF) trustees appear to be getting in early to avoid being caught by the Government’s $3 million superannuation fund cap, with many redirecting the money into family trust arrangements.
The $3 million superannuation tax does not come into effect until 2025/26 with legislation still to pass the Parliament but both Australian Taxation Office (ATO) data and that compiled by SMSF administrators has confirmed outflows associated with the impending change.
A common approach has been to direct excess funds from SMSFs to trust arrangements.
Commenting on the situation, Super Concepts general manager, Technical Services, Craig Stone said that as an SMSF administrator the firm saw the need to assist clients in the deployment of the new legislation.
“At this point in time, the Government’s $3 million super cap does not have a broad impact, considering that the average SMSF member account balance falls somewhere south of that number. However, we are seeing some clients with large balances establishing family trusts and moving money out of the superannuation environment,” he said.
The adjustments being made in the face of the $3 million cap sit alongside the general ageing of SMSF members as being responsible for the latest net outflow of funds registered in the ATO database at $17,650 million for 2021/22
The ATO’s analysis noted that over the 5 years to 30 June 2021, there was an overall net outflow of funds from SMSFs of $79.7 billion.
The ATO analysis also noted the transition occurring with the SMSF sector from the accumulation phase to the retirement phase with:
* 55% of SMSFs were wholly in accumulation phase, down from 58% in 2019–20, and 59% in 2016–17
* 36% were wholly in retirement phase, up from 33% in 2019–20 and 30% in 2016–17
* the remaining 9% of SMSFs were in partial accumulation and retirement phase, consistent with 2019–20, and down from 11% in 2016–17
* 45% of SMSFs made retirement benefit payments to at least one member in 2020–21, up from 42% in 2019–20, and 41% in 2016–17
* of the SMSFs that started to make retirement benefit payments, 73% of the funds were more than 5 years old and 8% were less than 2 years old.
It said this was mainly due to significantly higher benefit payments against contributions from the 2017–18 year onwards.
According to analysis from WealthData the outflows were owed in large part to benefit payments, but the $3 million cap was also seen as an issue.
WealthData principal, Colin Williams said that the outflows into benefits payments were problematic because while younger people were establishing SMSFs, it was the older cohort with larger balances who were initiating the payment of benefits.
Mike Taylor -Managing Editor/Publisher, Financial Newswire
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