A sector specialist has highlighted the need for SMSF trustees with certain legacy pensions to review the fund trust deed to determine whether they are restricted in their ability to commute one of these income streams.
“Back [in] 2004 and 2005, when they actually put an end to paying lifetime or life expectancy pensions in self-managed super funds and they restricted [the operation of] these pensions to funds with more than 50 members, when those restrictions came in, trust deeds had to provide for the capacity to pay and continue to pay these forms of pensions,” Smarter SMSF education and technical manager Tim Miller told attendees of a SuperGuardian technical webinar today.
“[So trustees with these income streams need to determine] how advanced were the commutation clauses in those deeds from pre-2005 because I’ve seen some that are actually quite well worded that will say the pension can be commuted in accordance with any legislative requirements.
“[However], some others will say [the trustees have] no capacity to commute [these types of pensions] and then highlight what the actual legislation said versus a reference to the legislation.
“So the deed is going to be an important factor to determining whether or not benefits can be paid out [in these circumstances].
“In the 40 to 50 [legacy pension commutations] I’ve done, I’ve seen a lot [variance] in the deeds.”
Miller also indicated SMSF members looking to end a lifetime or life expectancy pension may be facing a unique set of circumstances due to the relevant timeframe of these income streams.
“Most life expectancy pensions were set up for between 15 and 20 years. They were all set up from 2005 so they’re [nearing] if not already past the expiration of their term, so these pensions would be effectively sitting there as just a reserve inside the fund,” he noted.
“So we need to know how to deal with that situation.”
The government announcement to introduce a five-year amnesty allowing for the commutation of legacy pensions was made in December last year.
