The decision to run multiple pensions within an SMSF is often associated with the estate planning strategy of the fund members, but can also be initiated if a contribution strategy changes, a sector specialist has said.
“Often you’ll employ a multiple pension strategy because you’ve got multiple death benefit recipients and therefore you want to find a simple way of being able to divide your benefits between those individuals, and by doing it through separate pensions is one way to achieve that goal,” SuperGuardian education manager Tim Miller told selfmanagedsuper.
Further, Miller noted the changing nature of the contribution rules can also lead to the need to implement a multiple pension strategy.
“You can’t make contributions or add rollovers to a pension so therefore you make additional contributions to an SMSF, and they might be downsizer contributions or they might be non-concessional contributions past age 67 subject to the work test removal,” he said.
According to Miller, SMSF members who are in this situation, with new contributions in their accumulation account, and are yet to use up all of their personal transfer balance cap of $1.7 million may choose to then use a multiple pension strategy.
“They have to decide whether to stop their existing pension and start a new pension that will include the new contributions or run a multiple pension strategy and start a new income stream just with those contributions,” he said.
“They may choose to have multiple pensions for simplicity because one income stream will be fully taxable and one will be tax free.”
He pointed out opting for a multiple pension strategy in this scenario can also avoid the need to satisfy several pro-rata minimum pension amounts that would require payment if the original income stream was commuted and a new one started inclusive of the contributions.
“So a multiple pension strategy does have its administrative advantages too,” he said.
Multiple pension strategies will be explored in more detail at the selfmanagedsuper SMSF Professionals Day 2022 to be held on 31 May. Click here to register for the event.
