Pensions, Retirement

Lump sums can bypass accumulation account

Lump sums accumulation account

SMSF trustees can pay lump sums directly out of an income stream and bypass their accumulation account, a technical expert has said.

Lump sums paid from an income stream does not need to be rolled back into the member’s accumulation account before it is distributed, a technical expert has said.

Accurium SMSF technical services manager Melanie Dunn acknowledged there is some confusion regarding this procedure but better clarification has recently been provided.

“A lump sum payment is effectively like a partial commutation of a retirement phase income stream. However, I think it has been a little grey but we have seen ATO documentation [saying] that effectively [these amounts] can be paid straight out of a retirement phase income stream,” Dunn explained during the actuarial firm’s latest technical webinar.

“It doesn’t effectively hit that accumulation account when that benefit is paid,” she added.

Accurium managing director Doug McBirnie confirmed this was the regulators approach to the matter and pointed out the issues SMSFs would face if this practical approach to lump sum payments from pensions was not adopted.

“That seems to be the ATO’s view that you can pay a lump sum directly from the pension,” McBirnie said.

“The implications if you didn’t would be your accumulation and your pension [accounts] would mingle and then the tax components of the benefit would be different.

“That doesn’t seem to be the ATO’s [intention with] this situation.”

During the webinar Dunn was also asked whether a reversionary pension can have its status changed and if beneficiaries of death benefit pensions can be changed without commuting and starting a new income stream.

“In general, from what I’ve seen of the ATO’s view, possibly no but I have seen many lawyers say yes. So that’s possibly a bit grey,” she observed.

Dunn suggested trustees who find themselves in this situation revisit the terms of the pension and SMSF trust deed, to determine if this course of action is allowable, as well as consult SMSF lawyer.

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