ATO, Pensions, SMSF

Pension restructure needs approval

Pension restructure ATO

SMSF members restructuring a pension that has an excess transfer balance should wait for ATO approval before making any commutations from the pension.

The ATO has warned SMSF members looking to restructure a market-linked pension (MLP) under specific circumstances introduced in April last year should only act after receiving a commutation authority from the regulator and within the timeframes it specifies.

In an update on its website, the ATO pointed to changes made from 5 April 2022 that allow SMSF members with legacy pensions that create an excess transfer balance when commuted to convert them to a new MLP and commute the MLP without the excess being treated as a concessional contribution.

While those changes provide the option to commute an MLP where they cause a transfer balance excess, the regulator highlighted that without it issuing a commutation authority a member could not commute that pension.

“A commutation can only occur after the ATO has issued a commutation authority to the fund,” it stated.

“This occurs after the member has been issued with an excess transfer balance determination by the ATO. It won’t happen until 60 days has passed as this is a legislative requirement that allows time for the member to make an election.

“The ATO may issue a commutation authority within a reasonable time after the 60 days has elapsed. This may be a further 28 to 30 days.

“It may take longer if either the transfer balance account report or determination is amended, an objection is lodged or the member has elected to extend the election due date in the default commutation notice.”

The regulator also reminded SMSF trustees of their requirement to ensure they are making minimum annual payments for account-based pensions and that COVID-19 relief measures end on 30 June, pushing minimum payment rates back to their pre-COVID levels.

“If you haven’t already you must ensure all members receiving an account-based pension are paid their minimum pension amount by 30 June,” it noted, adding that failing to do so can result in adverse tax outcomes for members.

“For the 2023/24 financial year, the 50 per cent reduction in the minimum pension drawdown rate will no longer apply.

“This means on 1 July 2023 when you calculate the minimum annual payment on your pension balance, the 50 per cent reduction will not apply to the calculated minimum annual payment.”

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