Documentation, Pensions

Pension PDS caution required

pension PDS

Advisers should ensure they include a product disclosure statement in the pension information they issue to their clients.

A technical specialist has warned advisers to be mindful of whether the pension information they provide their clients includes a product disclosure statement (PDS) because the omission of this document could have adverse consequences for practitioners.

Heffron head of SMSF technical and education services Lyn Formica cautioned advisers about this issue with specific reference to an exemption available to SMSF trustees regarding fund documentation.

“The Corporations Act does include an exemption for SMSF trustees [whereby] SMSF trustees do not need to issue a product disclosure statement to a member if the trustee feels the member has all of the information they need to make an informed decision [about the pension arrangement being considered],” Formica told delegates at the Heffron Super Intensive Day 2021 held online recently.

“But if the pension pack you’re producing and providing to your client doesn’t include a PDS, then effectively you made [the decision not to issue this document to the fund members] for the trustee.

“So [effectively] you haven’t even given the trustees the opportunity to say ‘you know what, I’m not sure about this, I think we’d be better off having that documentation in place’.”

According to Formica, advisers can find themselves in this situation if they are using a particular type of pension provider software that does not issue a PDS as part of its standard operational procedures.

She also took the opportunity to stress pension commencement documents cannot be backdated in order to legitimise a pension arrangement that was put in place before the necessary paperwork was signed.

To this end, she noted the risk involved if the relevant documents are not approved prior to the pension being started as they are required to be by law.

“What’s the risk here? Well essentially [ATO] Tax Ruling 2013/3 tells us that a pension can’t start until the trustee and the member agree to the terms and conditions for that particular pension. So if push comes to shove and someone argues that the pension hasn’t started until that paperwork has been signed, when that agreement was put in place, then our issue is that we won’t have received any exempt income for that fund until the pension did actually start,” she pointed out.

“That could be a significant issue for your client if they have sold an asset in that intervening period.”

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