Monarch Institute: ADFP Module 4 Advanced Strategy Advice

This assignment solution addresses the key concepts of financial planning, particularly focusing on superannuation strategies, estate planning, and the implications of the Transfer Balance Account (TBA). The scenario involves Damien and Maxine, a couple seeking advice on maximizing their superannuation benefits and estate planning in light of changes effective from July 1, 2017. The solution explores how Damien can leverage the TBA rules and existing superannuation balances to optimize their financial position, especially in the event of Maxine's death. The response provides detailed explanations and figures, addressing strategies to keep as much money as possible inside the superannuation environment and take full advantage of pension benefit caps. It covers the creation of a death benefit income stream, consolidating superannuation interests, and utilizing the remaining capacity within the TBA to maximize tax benefits. The solution demonstrates an understanding of the new superannuation policies, including the $1.6 million cap, and provides practical steps for Damien to manage his and Maxine's superannuation accounts effectively.

ADFP Module 4 Advanced Strategy Advice assignment
1707
ADFP Module 4
Advanced Strategy Advice
Submission Instructions:
Key steps that must be followed:
 Please complete the Declaration of Authenticity at the
bottom of this page.
 Once you have completed all parts of the assessment and saved
it (e.g. to your desktop computer), login to the Monarch
Learning Management System (LMS) to submit your
assessment.
 In the LMS, click on the file ”Submit ADFP Module 4 Advanced
Strategy Advice” in the Module 4 section of your course and
upload your assessment file/s by following the prompts.
 Please be sure to click “Continue” after clicking
“submit”. This ensures your assessor receives notification –
very important!
Declaration of Understanding and Authenticity *
I have read and understood the assessment instructions provided to me in the Learning
Management System.
I certify that the attached material is my original work. No other person’s work has been
used without due acknowledgement. I understand that the work submitted may be
reproduced and/or communicated for the purpose of detecting plagiarism.
Student Name*: Date: 26/2/18Dan Raja

ADFP Module 4 Advanced Strategy Advice assignment
1707
* I understand that by typing my name or inserting a digital signature into this box that I
agree and am bound by the above student declaration.

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Important assessment information
Aims of this assessment
This assessment activity is conducted to the standard expected in the
workplace in order to demonstrate consistent performance of typical
activities experienced in the financial services industry.
You are expected to have a good working knowledge of superannuation
from having completed your Diploma of Financial Planning, although
superannuation notes are included as part of this module.
This assessment focuses primarily on strategic recommendations in a
financial planning context. It encompasses your knowledge base acquired
across previous modules within the Diploma of Financial Planning and the
Advanced Diploma of Financial Planning.
The assessment brings together the interaction of key financial areas
such as Centrelink, superannuation and estate planning
Marking and feedback
This assignment contains 3 assessment activities each containing specific
instructions.
This particular assessment forms part of your overall assessment for the
following units of competency:
 FNSFPL603
 FNSFPL606
 FNSPRM601
Grading for this assessment will be deemed “competent” or “not-yet-
competent” in line with specified educational standards under the
Australian Qualifications Framework.
What does “competent” mean?
These answers contain relevant and accurate information in response to
the question/s with limited serious errors in fact or application. If incorrect
information is contained in an answer, it must be fundamentally
outweighed by the accurate information provided. This will be assessed
against a marking guide provided to assessors for their determination.

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
What does “not-yet-competent” mean?
This occurs when an assessment does not meet the marking guide
standards provided to assessors. These answers either do not address
the question specifically, or are wrong from a legislative perspective, or
are incorrectly applied. Answers that omit to provide a response to any
significant issue (where multiple issues must be addressed in a question)
may also be deemed not-yet-competent. Answers that have faulty
reasoning, a poor standard of expression or include plagiarism may also
be deemed not-yet-competent.
Please note, additional information regarding Monarch’s plagiarism policy
is contained in the Student Information Guide which can be found here:
http://www.monarch.edu.au/student-info/
What happens if you are deemed not-yet-competent?
In the event you do not achieve competency by your assessor on this
assessment, you will be given one more opportunity to re-submit the
assessment after consultation with your Trainer/ Assessor. You will know
your assessment is deemed ‘not-yet-competent’ if your grade book in the
Monarch LMS says “NYC” after you have received an email from your
assessor advising your assessment has been graded.
Important: It is your responsibility to ensure your assessment
resubmission addresses all areas deemed unsatisfactory by your
assessor. Please note, if you are still unsuccessful in meeting competency
after resubmitting your assessment, you will be required to repeat those
units.
In the event that you have concerns about the assessment decision then
you can refer to our Complaints & Appeals process also contained within
the Student Information Guide.
Expectations from your assessor when answering different types
of assessment questions
Knowledge based questions:

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
A knowledge based question requires you to clearly identify and cover
the key subject matter areas raised in the question in full as part of the
response.
Skill based questions:
Where you are asked to write as though you are speaking to a client,
your answers must show your ability to:
 understand your client’s concerns/perspective/views
 show empathy
 display a professional response
 explain ideas clearly and simply so your client can understand the
issues
Good luck
Finally, good luck with your learning and assessments and remember
your trainers are here to assist you 

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
IMPORTANT INFORMATION
Please note: All relevant social security rates and threshold limits have
been provided with the questions so you are not required to look these
up.
You will need to draw upon your previous knowledge gained from the Diploma of
Financial Planning in Superannuation and the Advanced Diploma of Financial
Planning in Social Security.
The relevant Superannuation course notes have also been included in Module 4,
including the updates effective from 1 July 2017.
The Superannuation workbook from the Diploma of Financial Planning is also
included on the LMS for you to revise this topic.
Superannuation and Social Security are two of the biggest areas of knowledge
required in retirement planning.

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 6 questions that
follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the
front of this assessment
 Estimated time for completion of this assessment activity: 2-3 hours
Assessment Activity 1
Knowledge Base: Reversionary & Non-reversionary
Beneficiaries
Strategies: Transfer Balance Account & Centrelink

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
PART A: TRANSFER BALANCE ACCOUNT
Your clients, Damien, age 72 and Maxine, age 70 have made an appointment to see
you to discuss the superannuation changes effective from 1 July 2017. They each
have an existing income stream in the form of an account-based pension which is in
the retirement phase. They are particularly concerned with the new rules around
the Transfer Balance Account being maintained by the ATO. As they, in their words,
'are not getting any younger', they would like you to address strategies around
estate planning and the transfer balance account.
Damien and Maxine have elected each other to receive a reversionary pension in
the event that either one of them dies.
As at 30 June 2017 the balance of their account-based pensions is $1.4 million for
Damien and $950,000 for Maxine.
Damien withdraws a lump sum commutation of $100,000 from his pension account
on 31 July 2017 and Maxine withdraws a lump sum commutation of $50,000 from
her pension account on 1 August 2017 so they can travel around the world in
comfort.
Damien and Maxine also have substantial investments outside the superannuation
environment so it would be beneficial to leave as much money as possible inside
super to take advantage of the generous tax concessions.
Scenario 1:
If Maxine passed away on 20th December 2017, what action could Damien take to
ensure that:
a) as much money as possible remains inside the superannuation
environment, and
b) he takes full advantage of the pension benefit caps
Required:

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
1.1 Provide a detailed explanation of the actions that Damien could
take, including figures.
Scenario 2:
(a) The changes that have taken place in the superannuation policies have
been incorporated in order to enhance the flexibility, sustainability and
integrity of the super system in Australia. The changes have been effective
from 1st July 2017 and the changes in accordance to the transfer balance
account has been that there has been a new limitation on the amount of
super one can transfer and in the tax free retirement accounts. The cap that
is given is initially set at $1.6 million. According to the case study, it is seen
that Maxine and Damien have balance in their account based pension with a
value of $1.4 million for Damien and $950,000 for Maxine. In case Maxine
passes away on 20th December 2017, then Damien can transfer the
additional investment income that is outside the superannuation
environment within the superannuation balance as the cap that is
constructed is $1.6 million and in the Maxine’s account a total balance of
$950,000 is available. Therefore, Damien can create a new income stream
which is a death benefit income stream. This can take place when the two
income streams of the couple are rolled over from two different funds to a
new portfolio in order to permit Damien to consolidate their interests of the
superannuation. This is an effective process with the help of which the
additional income that is outside the super can be brought in and tax free
components can be increased according to the new cap that is determined.
The overall death benefit of Maxine is directly rolled in to another account
and the new fund requires to have a death benefit income stream and the
amount is paid out of the super as a lump sum amount. The death benefits
that are rolled out will not lose their tax treatment related to the death
benefit.
(b) Damien can even take advantage of the pension benefit caps as it is stated
that a cap of $1.6 million has been incorporated. The case study shows that
the amount in the super for Damien is $1.4 million and for Maxine is
$950,000. Hence, Damien can take their superannuation value up to $1.6

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
In this scenario, let us assume that there was no reversionary nomination in place
for Damien and Maxine's pensions.
Instead, the trustees of the superannuation fund, due to the powers available to
them under the trust deed, make the decision to pay Maxine's death benefit to
Damien in the form of an income stream.
To be clear, this is classified as a non-reversionary death benefit.
Naturally, Maxine's death benefit would not be paid out on 20th December 2017 as
it can take a while to be processed. Between the date of death and the date of
payment, 5th May 2018, returns of 8% have been credited to Maxine's account, and
returns of 7% have been credited to Damien's account. Therefore, the balance of
Damien's income stream account is $1,391,000, and the balance of Maxine's
income stream account is $972,000.
Under Scenario 2, if Maxine passed away on 20th December 2017, what action
could Damien take to ensure that:
a) as much money as possible remains inside super and
b) he takes full advantage of the pension benefit caps
Required:
1.2 Provide a detailed explanation of the action that Damien could take,
including figures.
(a) In case the super is a non-revisionary death benefit income streams for
Damien and Maxine, and if Maxine passes away on 20th December 2017,
then the money that is existent within the other super accounts and the
other amounts the super provider has looked to pay as a death benefit
income stream. The lump sum amount is paid in the account of Damien
and furthermore Damien can increase their super amount up to the value
of $1.6 million cap in order to successfully make use of the cap and
increase their income.
(b) Damien can even take full advantage of the pension benefit caps by
successfully bringing the money that is received as a death benefit for
Maxine within the account and thereafter utilize the pension benefit caps.

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
PART B: CENTRELINK
In a financial planning practice it is imperative, whether you are a planner, an
assistant, or an administrator, that you never complete something on a form or
"tick" a box that you do not understand the meaning of.
The following automatic reversion nomination is taken from a form for the BT
Classic Lifetime-Flexible Pension:
Your clients are Peter, age 69 and Lynne, age 64.
Peter retired in 2010 at the age of 62 and used his super balance of $410,000 to
commence a retirement phase income stream. At that time, Lynne was age 57.
When Peter commenced his income stream he nominated Lynne as a reversionary
beneficiary.

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Peter qualified for, and started to receive, the aged pension from Centrelink in
2013, prior to the deeming changes to superannuation pensions which took effect
from 1 January 2015.Peter has continued to receive the aged pension ever since.
The current capital value of Peter's retirement phase income stream is $300,000.
The retirement phase income stream balance plus the value of Peter and Lynne's
joint personal assets does not exceed the lower threshold of the assets test, so the
assets test does not affect Peter's age pension entitlement.
Peter and Lynne admit that they don't really understand the term "reversionary
nomination" nor do they understand how it affects their Centrelink entitlements.
Peter's 'relevant number' (RN) is 20.96 and Lynne's relevant number (RN) is 28.7.
Required:
1.3 Clarify for your client, what it means to have a reversionary
nomination.
1.4 Remember that Peter nominated Lynne as a reversionary beneficiary
when he commenced his superannuation income stream. You are required
to calculate the deductible amount of superannuation income that
Centrelink would disregard for the income test.
Please show both the formula and the calculation.
When an account based pension is initiated, a key decision one needs to make
is to understand how the existing balance of your pension and will be
distributed on the death. In this aspect, the reversionary nomination is the
individual nominated by the account holder who would automatically continue
to receive the pension even after the death of the pensioner. This provides the
pensioner with the benefit that after their death their nominee would be able to
receive the financial benefit with respect to the pension and the amount that is
saved in the pension account.
The deductible amount of superannuation income that Centrelink would
disregard for the income test is as follows:
Purchase Price/ Life expectancy
$410,000/28.7
= $14,285.

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Unfortunately, Peter did not have an adviser when he commenced his income
stream and he is unable to change his nomination without commencing a new
income stream; which would exclude him from the grandfathering rules which apply
to him.
You would have advised Peter not to nominate a reversionary beneficiary when he
commenced his super income stream.
1.5 You are required to calculate the deductible amount of
superannuation income that Centrelink would disregard for the income
test, if Peter had not nominated a reversionary beneficiary.
Please show both the formula and the calculation.
1.6 Peter is withdrawing an annual pension amount of $26,500 from his
super account.
Given his existing situation, calculate how much of his account-based
pension payment (in dollar terms) will be used by Centrelink when they
apply the income test.
Purchase Price/ Life expectancy
$410,000/20.96
= $19,561
$26,500-(410,000/20.96)
=$6939

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Activity instructions to candidates
 This is an open book assessment activity.
Assessment Activity 2
Knowledge Base: Pension payments & Lump Sum
Commutations
Strategies: Transfer Balance Account & Centrelink

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
 You are required to read this assessment and answer all 8 questions.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the
front of this assessment
 Estimated time for completion of this assessment activity: 2 - 3hours
PART A: CENTRELINK
When a Centrelink client receives an income stream, details of the income stream
must be provided to Centrelink on an annual basis. The completed form which must
be provided is called SA330 and it is provided by the payer of the income stream.
This is also known as a "Centrelink Statement".
This section of the form has been extracted from form SA330.

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Scenario
Your retired client Sam is 72 years old and he receives the full single age pension,
and has been, for the past 7 years; that is, his Centrelink pension was in place prior
to the superannuation deeming changes effective from 1 January 2015.
Sam also receives an income stream of $10,000 p.a. from his superannuation fund.
The purchase price of his income stream was $200,000 and the commencement
date of his superannuation income stream was 15th July 2010. His relevant number
(RN) for Centrelink purposes is 18.54.
Note that Sam's assets are below the lower threshold for the assets test, so his
pension eligibility is determined by the income test.
For this current year Sam is going to withdraw a lump sum amount of $25,000 from
his super income stream account, in addition to his regular payments. (That will
mean that he receives income totaling $35,000 from his super fund in this financial
year).
When Sam requests the additional withdrawal amount of $25,000 from his
superannuation pension account, he can request either:
a) An additional "pension" payment in the amount of $25,000,OR
b) A "lump sum" commutation of $25,000.
Prior to taking out the additional lump sum of $25,000, the deductible amount used
by Centrelink for the income test is $10,787 ($200,000/18.54).
NOTE: In practice, the decision to choose a lump sum commutation rather than an
additional pension payment will affect each client differently so you must always
take into account each client’s individual circumstances.
Required:
2.1 Let's first assume that Sam has elected to take the $25,000 as an
"additional" pension payment for the current year.

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Calculate the amount of superannuation income that will be used to
assess his Centrelink entitlement under the income test.
Annual payment - (purchase price / relevant number)
= $35,000- (200,000/18.54)
= $24,213
2.2 A single person can have income of up to $164 per fortnight (as at
20/03/17) or $4,264 p.a. without affecting their age pension payments.
Explain conceptually how taking the additional $25,000 as an additional
pension payment will affect Sam's age pension payments. (You are not
required to calculate the actual dollar figures).
It is seen that taking an additional $25,000 as an extra pension payment will have an impact
on the age pension payment of Sam. The taking up of an additional amount for Sam will
lead to the reduction in the Age Pension for Sam for the rest of the accounting year.
It can be said that timing is a key factor as when electing to increase the amount of annual
pension payment from the income stream that is account based, the timing plays a key role
as the increased assessable income would be applicable for the rest of the accounting year.
With the help of timing, the increased pension payment at the end of the financial year
would minimize the impact on the Centrelinks entitlements. Sam then has the responsibility
to alert Centrelink within two weeks of any transformations in any scenario. If Sam times the
rise in the pension payments towards the end of June and then inform within two weeks,
they would be able to lower the amount of income that is assessable.

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
2.3 Considering the deeming changes to superannuation which came
into effect on 1 January 2015, assume that Sam withdrew a much larger
amount out of his super account as an additional pension payment, which
wiped out his pension entitlement for the current year (that is, his
pension ceased because he had TOO much income).
How would this action affect his age pension entitlements in the following
years, when he only withdraws $10,000 from his super income stream
each year?
You need to reconsider the way in which Centrelink will treat his income.
In case of the circumstances when it is seen that Sam does not wish to withdraw the
additional amount but is happy to withdraw $10,000 from the super income stream every
year, then the deductible income would remain stable and would not reduce the
deductible amount and there will not be any changes in the assessable income of Sam.
The pension entitlements would remain unaffected and the individual would be able to
receive sustainable pension income.
2.4 A single person can have income of up to $164 per fortnight (as at
20/03/17) or $4,264 p.a. before affecting their pension payments.
Explain conceptually how taking the additional $25,000 as a LUMP SUM
commutation payment will affect Sam's age pension payments. (You are
not required to calculate the actual dollar figures).
It is seen that taking an additional $25,000 as a lump sum commutation payment will have
an impact on the age pension payment of Sam. The taking up of an additional amount for
Sam will lead to the reduction in the deductible amount which is permanent and will lead to
increased assessable income for the rest of the income stream. In this scenario, Sam will
continue to receive the maximum age pension in accordance to the income test as his

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
assessable income is below the income threshold.
It can be said that timing is a key factor as when electing to increase the amount of annual
pension payment from the income stream that is account based, the timing plays a key
role as the increased assessable income would be applicable for the rest of the accounting
year. With the help of timing, the increased pension payment at the end of the financial
year would minimize the impact on the Centrelinks entitlements. Sam then has the
responsibility to alert Centrelink within two weeks of any transformations in any scenario. If
Sam times the rise in the pension payments towards the end of June and then inform within
two weeks, they would be able to lower the amount of income that is assessable.
2.5 Let's assume that Sam does take the extra $25,000 as a LUMP SUM
commutation rather than an additional pension payment. Remember that
Sam's super income stream is subject to 'grandfathering'.
Calculate the 'deductible amount' of Sam's superannuation income stream
that will be used by Centrelink when they apply the income test.
Please show both the formula and your calculation.
(Purchase price/ lump sum commutations)/original relevant number
= (200,000-25,000)/18.54
=$9439
Actual Withdrawal-deductible income
= $10,000-9439
=$561

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
2.6 What is the difference between the deductible amount prior to
taking the additional $25,000 as a lump sum commutation, compared with
after taking the additional $25,000 as a lump sum commutation.
Comment on the likely future effect on Sam's age pension payments.
There exists a variation among the deductible amount prior to taking the extra
$25,000 as a lump sum commutation in comparison with the after taking the
additional $25,000 as a lump sum commutation is that prior to taking the additional
amount Sam would deductible amount would be higher and therefore the amount of
assessable income would be lower for the rest of the income stream. This would
indicate that the Age Pension amount will be lower in accordance to the income
tests. On the other hand, lump sum commutation after taking additional $25,000 is
that the reduction in the deductible amount for Sam is permanent and therefore will
lead to an increased assessable income for the rest of the income stream and
therefore Sam would continue to receive the maximum Age Pensions in accordance
to the income test as the assessable income is lower than the income threshold.
PART B: TRANSFER BALANCE ACCOUNT
The concept of a Transfer Balance Account was introduced into the superannuation
system effective from 1 July 2017. Use your knowledge from the superannuation
section of Module 4 to answer these questions.
Scenario
Your clients, Darren, age 70 and Meredith, age 68 have made an appointment to
see you to discuss the superannuation changes effective from 1 July 2017. They
each have an existing income stream in the form of a retirement phase income
stream. They are particularly concerned with the new rules around the Transfer
Balance Account being maintained by the Australian Taxation Office.
The balance of their account-based pensions on 30 June 2017 is:

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Darren: $875,000
Meredith: $640,000
Darren withdraws annual pension payments amounting to $45,000 and Meredith
withdraws annual pension payments amounting to $32,000.
The fund has generated income returns at 30 June 2018, totaling $68,000 for
Darren and $54,000 for Meredith.
Darren is going to withdraw an additional $100,000 as a lump sum commutation
from his pension account this year, so he can help his son with some medical costs.
Meredith is going to withdraw an additional $100,000 in regular pension payments
(in addition to her existing pension payments) from her superannuation pension
account this year, so she can help her granddaughter purchase her first home.
Both of the above withdrawals will take place on 30 January 2018.
Required:
2.7 Show all of the debit and credit entries which will appear in Darren's
transfer balance account from 1 July 2017 - 30 June 2018, and also show
the final balance of the account at 30 June 2018.
2.8 Show all of the debit and credit entries which will appear in
Meredith's transfer balance account from 1 July 2017 - 30 June 2018, and
also show the final balance of the account at 30 June 2018.
Particulars Debit Credit
Total
(i) Account Based Pension A/C $875,000
$875,000
(ii) Drawings A/C……. $45,000
$8,30,000
(iii) Income Returns A/C $68,000
$8,98,000
(iv) Drawings A/C………. $100,000
$7,98,000
Final Balance: $798,000
Particulars Debit Credit
Total
(i) Account Based Pension A/C $640,000
$640,000
(ii) Drawings A/C……. $32,000
$608,000
(iii) Income Returns A/C $54,000
$662,000
(iv) Drawings A/C………. $100,000
$552,000
Final Balance: $552,000

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Assessment Activity 3
Knowledge Base: Re-contribution Strategies
Strategies: Tax, Pension Benefits Cap, Contributions

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer the following 4
questions.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the
front of this assessment
 Estimated time for completion of this assessment activity: 1 hour
Background

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
You may recall the re-contribution strategy from your previous superannuation
studies.
Superannuation is covered again in Module 4 of this course, however we expect
that you would already have a solid understanding of the contribution rules and the
withdrawal rules. You should also have a good understanding of the tax-free and
taxable components which make up a superannuation benefit.
PART A: WITHDRAWAL TAX
Caroline is age 63 and retired and her second husband, Max is 66. The breakdown
of Caroline's superannuation benefit is as follows:
Tax-Free $120,000
Taxable $300,000
TOTAL $420,000
Caroline has in place a binding death benefit nomination to pay 100% of her
superannuation death benefit to her daughter Miriam who is age 40 and not a tax-
dependent. Max has sufficient super funds for the rest of his life so Caroline has not
named Max as a beneficiary of her super benefit.
3.1 Explain, conceptually, how a re-contribution strategy will result in a
better outcome for Miriam.
Your answer should include a ‘before’ and ‘after’ explanation about
implementing a re-contribution strategy. Calculations are not required.
A significant factor for the incorporation of the re-contribution strategy is the
element of tax as this strategy transforms the tax part of the superannuation
benefits into tax-free elements. This primarily leads to the reduction of the
probable tax payable when the super is given out to the beneficiaries after the
death of the person. This strategy can be incorporated if one is able to meet the
scenario of the release to contact the superannuation benefits and is even
accountable to make a contribution back in the superannuation. On the other
hand, prior to the incorporation to the re-contribution strategy, the tax proportion
will not be converted into tax free elements. This would not improve the tax
scenario of Miriam and therefore she would have to pay extensive level of tax.
Therefore, it is essential to incorporate the re-contribution strategy in order to
reduce the level of tax and thereby lead to better result for Miriam.

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
PART B: CENTRELINK
Michael is of pension age and is completing the paperwork to apply for the age
pension. He has a modest superannuation balance of $290,000 in an accumulation
account.
Michael's wife Sylvia is age 59 and she has $120,000 in a superannuation
accumulation account.
Sylvia has a part-time job and works exactly 30 hours each month.
Sylvia has never made any non-concessional contributions to her super account.
Michael and Sylvia own their home in Castlemaine which is valued at $480,000 and
there is no mortgage against the property.
They have the following joint assets: car $20,000, contents $25,000, and managed
funds $35,000.
Michael also holds a funeral bond valued at $12,500.
In addition to the joint assets, Michael also has a term deposit of $300,000 which is
due to mature next week.
The lower threshold of the assets test for their situation is$375,000 (as at 1 Jan
2017). If the couple’s assessable assets remain below $375,000, Michael would
receive the full age pension rate.
3.2 With their current situation, list the assets that will be included, and
those that will be excluded by Centrelink when they apply the assets test
for Michael. State the total dollar amounts of assets which are included
and excluded.
The assets that needs to be included by the Centrelink when they apply the asset
test for Michael are as follows:
Car: $20,000

ADFP Module 4 Advanced Strategy Advice assignment
1707
Units: FNSFPL603, FNSFPL606, FNSPRM601
Contents: $25,000
Managed funds: $35,000
Superannuation: $290,000
Funeral bond: $12,500
Term Deposit: $300,000
The asset that is to be excluded in the asset test for Michael is:
Principal Property (Home in which Michael resides): $480,000
3.3 In respect of the couple's existing assets, explain 2 courses of action
that they could take in order to reduce the assets which will be assessed
by Centrelink.
You should mention any rules that would allow them to do this.
You should also name one downside risk for each course of action.
In accordance to existing assets of the couple, there are two courses of actions
that they could undertake in order to mitigate the assets which would be
evaluated by Centrelink. The two courses of action incudes withdrawing the certain
percentage from the superannuation account. The rule that would be applicable
for this scenario is that Centrelink permits the clients to withdraw a certain amount
of their balances every year. The risk that is related to this aspect is that it can
increase the assessable income and thereby increase the tax component. The
other course of action is selling off the funeral bond as this would reduce the asset
and the rule applicable to this is the government providing provisions to sell their
bonds. The risk that is related to this scenario is that this can have an impact on
the actual income of the client.