Excess pension payment rules key

Excess pension payment

SMSF trustees should establish consistent rules as to whether payments in excess of the minimum pension are treated as lump sums.

An SMSF specialist has emphasised the importance for trustees to establish a consistent and disciplined process when determining whether a retirement-phase income stream drawdown above the minimum pension is treated as a lump sum in light of a change to the relevant legislation made a few years ago.

“One of the questions I’ve been asked a few times this year is around the election process [for taking a pension payment as a lump sum]. We know that before 2017 if we took a superannuation lump sum from a pension account, we had to make an election prior to that [event] and that had to be a written election to the fund,” SuperGuardian education manager Tim Miller told his audience during a technical webinar held today.

“That legislation [imposing the requirement to make this election] disappeared from 1 July 2017, but I think the practice should remain.

“I think it’s prudent for members to have in place a standing order when they look to commence pensions that says that we will always pay the minimum and any amount above the minimum will be [treated as] a partial commutation or will be [treated as] a withdrawal from our accumulation interest.”

If members do not put in place a standing order to treat excess pension payments, Miller said they should at least get into the habit of notifying their advisers, accountants or administrators of how they would like the amount to be classified.

He pointed out developing this discipline will be extremely important in the coming year due to impending transfer balance account report changes.

“As we move to [a quarterly transfer balance account reporting] arrangement, then we need to make sure that everybody’s quicker in their reporting of these transactions because while at the moment no penalties have been applied, to my knowledge, for late lodgement of transfer balance account reports, that’s not to suggest the ATO won’t in the future look at doing that,” he warned.

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