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Administration, Documentation, Pensions

Advisers urged not to skimp on pension documents

SMSF advisers should adopt detailed pension documentation, instead of relying on documents produced internally or via software, to prevent future problems with clients and a breach of professional indemnity (PI) insurance, according to a leading service provider.

In a recent webinar, Topdocs national manager for training and advice Michael Harkin said the firm had seen advisers using a range of documentation, or no documentation at all, and as such was concerned these practitioners would run into trouble with the ATO.

“We are seeing issues coming from the banking royal commission and from litigation that makes us question the effectiveness of some documentation in use by advisers,” Harkin said.

“The basis for our reasoning on this issue are the comments the ATO has made in a number of publications, including Tax Ruling 2013/5, which deals with when a pension commences and ceases and addresses the need for a pension agreement, as do a number of private rulings.”

He pointed out advisers have been relying on the fact an SMSF is paying a pension as evidence a member is in pension phase and strongly recommended against the practice, especially with new funds. Operating in this manner meant there is no ability for future planning and no way to identify if the pension was in reversionary mode, he warned.

Additionally, he said advisers should be wary of using simple letters, minutes or computer software form documents even though they may be quick and cheap to produce.

“Will these be sufficient for the pension, and when it comes to who prepared the documents, would your PI insurance cover the provision of those documents if there was a claim against you as an adviser at a later date?” he said.

“Detailed documents will cover an audit or any move to a reversionary pension and in the event of a need to vary the pension there is a basis to do so, and as an adviser, you have limited your risk because you’ve not gone outside your PI cover.”

“You have to question whether putting your neck on the line for your client for a few dollars is worth it? Do you love your client that much and will they love you in the event something goes wrong?”

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