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Time Running Out For Anti-Detriment Benefits


Advisers wanting to take advantage of the anti-detriment provisions for death benefits paid to their clients must do so before 1 July, a financial institution has said.

A large financial institution has reminded financial advisers with SMSF clients that any death benefit payments incorporating the anti-detriment provisions must be made before 1 July, at which time the provision will no longer be available.


Macquarie Group stated death benefit payments taking advantage of the anti-detriment provisions can only be made if the member in question passed away prior to 1 July 2017, the benefit is paid as a lump sum before 1 July 2019, and if the recipient of the benefit is the spouse, former spouse or child of the deceased at the time of death or payment.


Due to the fact the death benefit incorporating an anti-detriment provision has to be taken as a lump sum, and thus exited from the superannuation environment, the investment bank stipulated analysis must be performed to determine whether the benefit of using the anti-detriment provision outweighs having the death benefit taxed at the recipient’s marginal tax rate.


To illustrate the point, Macquarie used the example of Jane, who is already receiving a death benefit pension from a spouse who died in 2016, but is entitled to take a lump sum benefit that can take advantage of the anti-detriment provision if paid before 1 July 2019.


In the scenario, the individual’s death benefit pension is valued at $600,000 with a taxable component of $400,000. According to the standard formula, with the service period commencing after 30 June 1988, the anti-detriment payment available for the member would be 17.65 per cent of the taxable component.


“If Jane commutes the pension and takes it as a lump sum, she will receive an anti-detriment benefit of approximately $71,000, meaning she will now have $671,000 to invest outside of the super environment as opposed to $600,000 in super,” Macquarie said.


“Investment earnings on Jane’s death benefit pension are tax free, however, earnings when invested outside the superannuation environment will be subject to tax at personal marginal tax rates.


“Where the income outside of super is subject to tax, it will take some time for the additional tax liability to exceed the benefit of the anti-detriment amount.”


Macquarie also pointed out a death benefit in the main could be maintained with a smaller “ad hoc” lump sum being drawn to take advantage of the anti-detriment rules.

In the scenario above, it said if Jane wanted to take a lump sum of only $100,000, she would only be required to withdraw $89,474 from the pension with an anti-detriment component of $10,526 to make up the desired amount.


“The anti-detriment era is coming to a close and this is the last opportunity for certain clients to receive an increase to their death benefit where it is paid before 1 July 2019,” it said.


Source: https://smsmagazine.com.au/news/2019/06/17/time-running-out-for-anti-detriment-benefits/


By Darin Tyson-Chan

Self Managed Super

17 June 2019

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