Benefit redirections allowable

super benefit redirections

Super fund members can redirect benefit payments to other bank accounts despite some funds imposing artificial barriers to prevent these movements.

Super fund members, including those in an SMSF, cannot be restricted from having a benefit payment paid into the account of another person, with any restrictions usually an additional rule imposed by the fund, according to an technical specialist.

Heffron head of SMSF technical and education services Lyn Formica said Superannuation Industry (Supervision) (SIS) Regulations would appear to block the payment of any benefits to any person except the member, but that was not the case and had been tested in court.

“If you look at the SIS Regulation 6.22, it basically says a member’s benefit must not be cashed in favor of someone other than the member unless the member has died and the benefit was being paid to the legal personal representative of the member or their dependants,” Formica said in a recent webinar.

Putting forward a case study of a 66-year-old SMSF member called Fred, Formica asked if it was possible for him to have a pension payment directed into the bank account of his partner, Carol.

“Yes you can as there was a court case many years ago, Asgard Capital Management Ltd v Maher, the end result of which is that once Fred becomes entitled to a benefit payment, he owns that benefit payment, he could do with it what he would like to. So, regardless of that SIS regulation, that’s fine,” she said.

“He is not trying to assign benefits [to someone else], but giving a direction to the trustee to give him the pension payment but put it into that bank account over there.”

She noted the rule was not unique to SMSFs, but some Australian Prudential Regulation Authority-regulated funds may add additional rules to prevent it taking place.

“Large funds often have their own rules and policies and, more often than not, will not allow Fred to direct his pension payment directly into Carol’s bank account,” she said.

“They will insist on Fred’s pension payment going into Fred’s bank account or a joint account with Fred and Carol as they feel that is the safer way to do things, but by law you can direct your payments.

“From an SMSF point of view, if Fred’s pension is being paid into Carol’s bank account, there needs to be some documentation to evidence that.

“Even when we’re doing lump sums and in-specie payments we need to get the paperwork right to give effect to that.”

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