Advisers need to ensure their SMSF clients take appropriate action on the reduced minimum pension measures introduced by the federal government as part of its economic response to the COVID-19 pandemic, a technical expert has said.
Smarter SMSF chief executive Aaron Dunn said advisers should keep in mind the existing “pecking order” for taking benefit payments exceeding the minimum pension when applying the new temporary measure providing a 50 per cent reduction to the minimum pension for 2019/20 and 2020/21 for their clients.
In a blog post on his website, Dunn pointed out in order to remain compliant, advisers needed to ensure funds first met the minimum pension, then they needed to take benefits from any accumulation accounts before taking a partial commutation lump sum.
In addition, he highlighted the importance of advisers effectively documenting each step on behalf of their clients.
“One of the really critical strategic points that I want to make you aware of is to ensure that, where you have clients that are ultimately taking more than the minimum, and that being a reduced minimum now which could be as low as 2 per cent of a member’s account balance, we do need to ensure that we have appropriately documented certain amounts where they are being designated to have been taken from either a member’s accumulation account, or is being treated as a partial commutation,” he noted.
In the event a member was going to take above minimum pension amounts from an accumulation account through to partial commutations, advisers needed to strictly follow the requirements set out within the ATO’s Practical Compliance Guideline 2017/5, he added.
“This is a critical issue now for FY 2019/20 on the basis that we have seen the 50 per cent minimum pension reduction,” he said.
Earlier this week, SMSF specialists pointed out the pension measures would have some restrictions.
In addition, Heffron chief executive Meg Heffron said the reduction in the minimum pension drawdown amounts would be more beneficial in the next financial year, but plans to maximise those benefits should be made in the current year.