Starting more than one pension to facilitate a recontribution strategy has attractive tax advantages, the head of a self-managed superannuation fund (SMSF) service provider said.
"As a general rule, more is better," Heffron principal Meg Heffron told the 2012 Self-Managed Super Fund Professionals' Association (SPAA) SMSF National Conference yesterday in Sydney.
"Expect your clients to have more than one pension, particularly during that critical period of 60 to 65 [years old]. They might have a dozen then, but even post-65, they probably will have a couple."
The technical session was pitched to advisers and accountants looking for largely tax-driven issues to discuss with their clients, particularly in relation to whether to it was wise to establish multiple pensions for clients.
Heffron said to look for opportunities to get 'more bang for your buck' with recontribution strategies.
"If you want to do that, you should by definition have more than one pension because it makes the whole process of recontribution far more tax effective," she said.
"What's important when you take it out and put it back in [is that] the money going back in should be in its own unique pension and you might do that half a dozen times and have half a dozen pensions, which you'll collapse and combine at the end."
Effectively, clients should be drawing down on the pot of money that has the highest exposure to tax in the future and return contributions to an isolated pot that doesn't have exposure to tax in the future, Heffron said.
Estate planning flexibility, protection from legislative change, maximising unrestricted non-preserved balances and creating a 'fall guy' by using a smaller pension to mop up mistakes were also presented as benefits of multiple pensions.
Heffron said advisers must then ensure pensions are revisited periodically after they are established.
"It's not 'set and forget'.
"At various points in your life, you want to slip back into a combination of pension and non-pension mode for a bit [because] there's a funny discrepancy between the way capital losses work when you're wholly in pension phase versus not," she said.
To view video coverage of the 2012 SPAA SMSF National Conference, please visit InvestorDaily's video page.
