Engaging an actuary may be required when commuting legacy pensions and allocating any associated reserve to members when more than one of these income streams exists in a single SMSF, a sector technical expert has suggested.
“If there are multiple pensioners within an SMSF, let’s say [a husband and wife both] have a complying lifetime pension, then it’s in the [trustees’] best interest to at least have a discussion with the actuaries to determine how much value of [a reserve linked to the two income streams] is attributable to [the husband] and how much is attributable to his spouse to ensure that the allocation where there are multiple pensions is done on a fair and reasonable basis,” Smarter SMSF education and technical manager Tim Miller told advisers during a technical webinar hosted by SuperGuardian yesterday.
Miller pointed out the regulations dealing with the five-year legacy pension amnesty make a specific reference to this scenario and provide guidance as to the management of these situations.
“The regulations talk about where you are making an allocation from a reserve and there are multiple legacy pensions, or there is a legacy pension that’s not going to be commuted and one that will be commuted, then you have to make any reserve allocation on a fair and reasonable basis,” he noted.
According to Miller, verification as to how much of a reserve should be attributable to each fund member will provide trustees with sufficient evidence the allocation has been executed on a fair and reasonable basis.
However, he acknowledged involving an actuary in the process is not absolutely necessary.
“Some people will look at the member statements and say we think that’s fair and reasonable because this is how [the split] has always been recorded,” he said.
“I have seen other circumstances where the trustees have made allocation reference to the fact that one spouse is younger than the other one so therefore more of the reserve is actually allocated to the younger spouse because they have a longer life expectancy and so it doesn’t necessary mirror the account balances.”
