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Grandfathered pension check crucial

Grandfathered pensions

Advisers should check if pensions are grandfathered when stopping and starting ABPs to avoid potentially devastating outcomes for some clients

Advisers should ensure existing account-based pensions (ABP) are grandfathered in order for them to be treated the same as before changes were introduced that could now leave some clients at a severe disadvantage, an SMSF technical expert has said.

Heffron senior SMSF specialist Alex Denham urged advisers to check pensions are grandfathered when stopping and starting ABPs for their SMSF clients, particularly in cases where a member has a commonwealth seniors health card (CSHC) or is on an income support payment such as the age or service pension.

“As time goes by and we get further away from 2015 [when the income test treatment of account-based income streams changed for both the CSHC and government income support payments] and more super law changes come in to distract us, it’s going to get easier to forget that a client’s ABP is grandfathered,” Denham said in a blog post on the Heffron website.

“It’s important that you understand grandfathering if you have clients with these products, as losing their CSHC or age pension can often be (sometimes disproportionately) devastating for the client.”

She pointed out an ABP that was grandfathered for CSHC purposes would not be grandfathered if the individual moved from a CSHC to the age pension, because the condition requiring continuous receipt would no longer be met.

A reversionary ABP would continue to be grandfathered on reversion to a surviving spouse if the surviving spouse continued to receive their CSHC or income support payment uninterrupted, she also noted.

“Messing with a grandfathered pension falls firmly into the category of problems you can’t fix, so to avoid risk to your business, always consider it when advising on pensions,” she added.

Earlier this year, specialist adviser Mark Ellem said the impact of the COVID-19 pandemic on financial markets could help SMSFs resolve potential transfer balance cap issues with a legacy pension.

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