Pension documents that reference superannuation law as the key guidance for the payment of an income stream are inadequate and should be reviewed, with older contracts and those generated by software most likely in need of examination, a technical specialist has noted.
Smarter SMSF education and technical manager Tim Miller said using the Superannuation Industry (Supervision) Regulations within an SMSF trust deed to define how a pension is paid would leave gaps that need to be filled for the proper operation of the income stream.
“The law states you have got to make a minimum payment, you have to pay it annually and it can only revert to certain people on death,” Miller said during a presentation hosted by SuperGuardian today.
“As far as how all the conditions of that work, you are left to your own devices, which is why the deed and any subsequent governing rules are going to be important to determine the conditions associated with the pension that you’re trying to start.”
He pointed out the recently updated Taxation Ruling (TR) 2013/5 emphasised the need to have specific details spelt out and that a pension was determined by reference to the terms and conditions agreed by the trustee and member, and by the rules set out in the governing documents.
As such, he said the need to ensure the requirements of TR 2013/5 were being met had become more important for some existing pension documentation.
“The advent of pension contracts over the last 10 to 15 years has been pretty significant and someone that’s been around as long as I have will remember a lot of pension commencements were effectively set out on one page,” he noted.
“In those you will see a minute that states here is a pension, here are the terms and this is what the trustees agree to do.
“If you try to break that down, and I’m not suggesting those documents don’t stand up now, but if challenged from the perspective of actions you are trying to take apart from making payments in accordance with the minimum, then will the pension stand up to any potential challenges for actions that might be taken?
“Most of those actions are going to be around the death of a member, so have an appreciation the old way of doing things is long gone and we need to provide more substance to what we’re producing with regards to pension commencements.
“That can be problematic if you’re relying on pension documents that can be turned out by the various software providers. They do a good job at their primary purpose to reconcile the fund to prepare financial statements.
“How substantial those documents are is something that would need to be reviewed because some will pass all the requirements, but others, and I suspect pension commencement documents are one area, probably don’t have enough information held within them.”
