Pension status vital in wind-ups

SMSF pensions

The status of all current pensions needs to be taken into account when looking to wind up an SMSF to avoid cancelling any with special treatment.

Advisers should ensure the status of all existing pensions has been taken into account when guiding their clients through an SMSF wind-up, a sector specialist has said.

In particular, careful consideration should be given to income streams that were established before 1 January 2015, and as such have been given special treatment, because these income streams will be permanently lost if a fund is wound up, Heffron senior SMSF technical specialist Annie Dawson suggested during a webinar today.

“A big [issue regarding fund wind-ups], and we’ve seen some court action on this one, is [members] not being aware that winding up, and ceasing pensions [as a result], has impacted them because those pensions were grandfathered,” Dawson said.

More specifically, these income streams received special treatment if they were in place prior to 1 January 2015 and the member with the income stream was also in receipt of Centrelink entitlements, she added.

“[Advisers must consider whether] clients may want to continue to make sure those monies are grandfathered because of the Centrelink consequences and the flow-on effects,” she said.

According to Dawson, SMSF administrators also have a role to play in this aspect of a fund wind-up.

“If you’re administrator, it might be a case of just saying ‘hey, you know you’ve got grandfathered pensions’ before you hit the go button and cease them,” she said.

Apart from grandfathered pensions, she pointed out there was another consequence with finality SMSF members need to be told about when contemplating winding up their fund.

“Another thing we want to make sure the client is aware of is if they happen to be sitting on any tax losses, [they will be lost],” she said.

“We can’t take them with us unfortunately [even if the benefits are rolled over to another fund]. That can be revenue or capital losses.”

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