Rise in pension age should not worry SMSF investors

Speculation that the federal government might lift the age at which people can access their superannuation savings to 70 years should not concern people who have invested in property through a self-managed superannuation fund, a technical expert has said.

Federal Treasurer Joe Hockey last week gave strong indications that the age of eligibility for the government pension is likely to be lifted to 70 years over time while access to other government benefits for older people will also be restricted.

The statements have fuelled fears that the so-called preservation age at which people can access superannuation savings will also be raised.

But SMSF Professionals Association of Australia director technical and professional standards Graeme Colley told Property Observer that an increase to the preservation age for superannuation might advantage people who hold property in their fund.

“It might be an advantage because the longer they hold a property, the greater the likelihood of capital gains,” Colley said.

Many people who own investment property through an SMSF are forced to sell when one of the members retires if the property does not generate sufficient cash flow to pay a pension from the fund.

Colley said an increase to the preservation age for superannuation would probably be accompanied by an increase to the age at which people can make personal and voluntary contributions to their funds.

As the rules stand now, all working people can receive superannuation guarantee payments from employers into their funds, regardless of age. However, while people aged under 65 can also make voluntary or personal contributions to their funds, those aged between 65 and 75 years must meet a work test to be able to do so.

People aged over 75 are unable to make any personal or voluntary payments into their funds.

SMSFs that have borrowed to invest, particularly those that have negatively geared property, often need to sell if members can no longer contribute to the fund to make up the shortfall in cash flow.

Giving older people who were no longer working the ability to make personal contributions to superannuation would allow them to hold their property in the fund for longer, providing the advantage of holding the asset in the low-tax superannuation environment.

“The longer it is, the better it is,” Colley said.

He added there was a risk for government that lifting the superannuation preservation age beyond the planned graduated increase to age 60 by 2024 and aligning it with the age pension age could backfire and put unintended pressure on other parts of the social security system. 

Amounts accumulating in superannuation are excluded from the assets tests that determine whether people qualify for social security payments.

Older people currently moving from the workforce to the age pension, topped up with superannuation benefits, could be forced to rely on other social security payments such as the Newstart Allowance if they were unable to find work but were too young to access their superannuation or the age pension, Colley said. 

 This article first appeared on Property Observer.

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