Pensions, SMSF, Technology

Check pension rollover process in software

SMSF Superannuation Divorce Pension commutation accumulation administration software

SMSF practitioners should not confuse software processes with legal requirements when it comes to rolling a pension from one fund to another.

SMSF members receiving a pension but splitting their super due to a divorce do not have to commute the income stream back into accumulation phase, despite some administration software requiring that to take place, an SMSF technical specialist has noted.

Heffron client relationship manager Sean Johnston said when an SMSF member receiving a pension was moving their balance to a new fund, a commutation had to take place, but practitioners should not confuse software processes with legal requirements.

The benefits will need to be commuted as you are stopping a pension and cannot roll over a pension directly. So it has to be done that way, there are no choices,” Johnston said during a recent webinar.

“Whether a commutation has to go back through your accumulation account is dependent on the circumstances, but as a general rule they don’t.

“Where we get into problems is a lot of administration software makes us put the commutation back into accumulation, particularly for a rollover, and makes you do that rollover from there.”

He suggested where software required these steps, practitioners should be careful of what they document to avoid mixing the commuted funds with those in accumulation.

“If there is a rollover or commutation that isn’t supposed to go back through the accumulation account, you might have to indicate that happened for software purposes to make the program work,” he said.

“However, do not document the commutation as going back to accumulation because it hasn’t; this is something that we’re doing to get around a limitation in our software. If you do document it going back to accumulation, it has gone back to accumulation. That’s an unfortunate side effect of that documentation.”

Heffron head of education and content Lyn Formica added she was aware some software allowed for a direct rollover from a pension account without first having to send it back through an accumulation account, but where that was not the case, practitioners should adopt a workaround.

“Before you roll an amount back to the accumulation phase, pretend to start a pension with what’s already in the accumulation account on your software,” Formica said.

“You’re not actually starting a pension, but pretending to do so to clear out the accumulation account to allow the rollover, that is, the commutation of the pension, to come in, then roll it out and undo the pension start-up.”

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