SMSF trustees planning to receive income from multiple account-based pensions must ensure they have clear instructions in their documentation demonstrating they are meeting the minimum pension payment requirements for all pensions involved, according to an SMSF technical expert.
Smarter SMSF technical and education manager Tim Miller stressed meeting minimum requirements for one pension does not excuse trustees from their obligation to meet minimum payment standards for another pension and failing to do so may make them ineligible for exempt current pension income.
“Multiple pensions are one of the great strategies with regards to not just estate planning, but also to minimising the risk of failing to pay the minimum pension,” Miller told attendees at a SuperGuardian pension planning webinar last week.
“The ATO has said that if you have two pensions and you meet the minimum for one and not the other, then the pension that you meet the minimum requirements for satisfies the condition [and] you’ll only lose the exemption on the other pension.
“They have also stated that if you have drawn more money than the entire minimum from one pension account, then you cannot automatically assume that you can apply that minimum to the second pension account.”
According to Miller, trustees should make sure their pension documentation clearly outlines a strategy for meeting minimum payment requirements, which may include spreading income payments across multiple pensions, for example.
“The key is going to be in the way that we document our pension’s documentation for an annual requirement. How we identify the rules around each pension is going to be critical,” he said.
“This comes back to using that piece of advice from the tax office to your strategic advantage to make statements when the pensions are established [and] ensure you’ve got payment instructions that state any withdrawal from the fund will be allocated on a proportional basis to ensure that each minimum is met, and then a further instruction as to how to treat payments in excess of the minimum.
“The worst-case scenario is you are going to lose the exemption for one of the pensions, but in a best-case scenario we can work past the ATO’s stated position about multiple pensions and one member and we can allocate the income withdrawals across all of those pension accounts.”