SMSF practitioners should remind clients drawing a pension from their fund that they need to take out the full minimum amount for the current financial year after four years of the discounted rate as failing to do so may cause the income stream to cease.
SMSF consultant Graeme Colley said the discounted rates for minimum pensions, which were in place from 2019/20 to 2022/23, no longer apply and that may be overlooked by those who became familiar with using them.
“Up until the last financial year there was a 50 per cent reduction in the minimum pension factors required depending on the age of the individual, but for this financial year the percentage is the full rate,” Colley said during an Institute of Financial Professionals Australi webinar today.
“I would suggest with some clients that you contact them prior to 30 June this year because they are going along and drawing down their pension at the discounted rate and may need you to remind them it’s going up to the full rate.
“There are clients that just cruise along and say: ‘Well, I took that amount out last year. I’ll take the same amount out this year. That will be okay, won’t it?’ and the answer is no because we’ve gone back to the full rate.”
He said where an SMSF failed to meet the drawdown standards, the income on the investments supporting that pension would no longer be tax exempt for the financial year and the ATO would consider it to have ceased.
While this was an added incentive to remind clients of the need to draw down the minimum amount, the work involved in recommencing a pension was an additional hurdle that could be avoided, he said.
“It would require [your client] to recalculate the minimum for the 2024/25 financial year and all the processes you’ve gone through to set up the pension have got to be repeated, but what you really need to do is not clear,” he said.
“The ATO says you will need to recommence the pension, so does that mean you to calculate the balance, then have the member request the recommencement of the pension under another pension agreement? I am not sure because the ATO doesn’t help us [with additional information] in that regard.
“If you do want to be absolutely squeaky clean on that, then maybe it does require those documents to be recreated in those cases with a change of date and a change of the balance in that pension.”
