The ATO’s view that any pension that fails the minimum payment obligations has ceased will be difficult to administer in the case of death benefit pensions and more guidance is needed as to how recipients should proceed, a technical specialist has said.
Smarter SMSF head of education Tim Miller said changes introduced to Taxation Ruling 2013/5, which states a pension that did not meet its payment requirements will cease and can only remain an income stream if commuted and started as new pension, raised questions around the treatment of reversionary pensions.
“With a reversionary pension it’s a continuation of the existing contract, so the pension is calculated on 1 July and the minimum paid by 30 June the following year,” Miller said in a recent briefing hosted by SuperGuardian.
“With that reversion, let’s say the member that passed away did all the transacting in the fund and paid the pension and the spouse didn’t participate much.
“Not a great practice, but it happens and if the minimum pension isn’t paid from the reversionary pension, we apply the one-twelfth shortfall rule.
“Does that exist there or do we need to apply for discretion?
“If not, do we look at ceasing the pension and purchasing another death benefit income stream because the member met a condition of release in death and like an account-based pension that money cannot roll back to accumulation, or does it have to be taken out of the superannuation system?”
He noted these questions were being raised as previous ATO guidance in this area stated that if a new death benefit pension was started, based on the age of the reversionary pensioner, the only problem would be the loss of exempt current pension income until the time the new income stream started.
“The ATO have removed that reference from their website, so we hope that is still their approach to death benefits as the most practical approach to take is to start a new pension with the proceeds.”
