Pensions, Superannuation, Tax

Soft cap has pension strategy impact

Pension strategies dealing with a member’s death could be impacted by the proposed additional tax on super balances above $3 million.

A senior industry executive has warned advisers and trustees that the government’s proposed 30 per cent tax on total super balances above $3 million will have an effect on pension strategies in the event of an individual’s death.

Specifically, Institute of Financial Professionals of Australia head of superannuation Natasha Panagis said the merits of having a reversionary pension in an SMSF will have to be evaluated in the context of the government’s new retirement savings measure should it pass through parliament.

“You might actually have members who have total super balances of less than $3 million at the moment, but [when their] spouse passes away and they inherit their spouse’s super as a pension, [the value of that pension] will also be captured in the surviving spouse’s total super balance,” Panagis noted.

“[It means] people who were never expecting to have their total super balance exceed $3 million [will face] being impacted [by the proposed tax] as well.”

She reminded practitioners should the proposed policy be implemented it will receive its initial test in the 2026 income year.

“This will be tested for the first time on 30 June 2026 and the first tax bills will be issued in the 2026/27 financial year,” she said.

“So it all comes down to [a member’s] total super balance at 30 June 2026. If [the member] has a large balance in 2025/26, but then [they] withdraw amounts in excess of $3 million before 30 June 2026, then [they] they won’t be impacted.”

According to Panagis, the policy will lead to greater complexity associated with the superannuation system and singled out valuations as an example of why this outcome may eventuate.

“As you know, not all assets are easy to value especially at a particular point in time and sometimes it’s not really known what an asset’s value is until you actually sell it, so [the measure] can create these valuation issues,” she warned.

The government last month announced its intention to introduce a $3 million soft cap.


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