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Trustee structure key in retirement income decision

smsf trustee affect retirement income

The nature of an SMSF trustee can affect the retirement income which comes from the fund and how benefits are paid it members in retirement.

The governing structure an SMSF employs, that is, either an individual trustee or a corporate trustee, can affect how the fund members receive their income in retirement, a senior technical expert has said.

“Section 19 of the SIS (Superannuation Industry (Supervision)) Act says if you have individual trustees, you have to pay an old age pension,” Chartered Accountants Australia and New Zealand SMSF technical consultant Tracey Besters told attendees at the professional body’s recent SMSF Day 2019 in Sydney.

Despite this position, Besters pointed out it is possible for a fund with a non-corporate trustee structure in place to pay a member their benefits in retirement via an SMSF lump sum.

“The ATO in 2006 in its NTLG (National Tax Liaison Group) superannuation sub-committee minutes said individual trustees can pay a lump sum, but the trust deed must allow it,” she noted.

“So if we’ve got individual trustees, we just need to make sure that our trust deed does allow us to pay a lump sum, otherwise we’ll have a little bit of a problem in terms of definitions of a regulated superannuation fund.”

On a positive note, she recognised in the past 10 years she personally had not seen an SMSF trust deed that did not allow the fund to pay retirement benefits as a lump sum.

In terms of SMSF strategy, she suggested this issue would mean one of these retirement income payment methods would likely be favoured over the other.

“Because of this particular regulation, to me a lump sum or a combination of a lump sum and pension if we have an individual trustee is probably a little bit less favourable, and an income stream is probably more favourable [in these types of circumstances],” she said.

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