Putting in place pre-emptive measures to restart a pension that has not met the minimum payment requirements may be possible, but may not meet the legal requirements placed upon an SMSF trustee or their advice provider, an audit expert has warned.
ASF Audits head of technical Shelley Banton said the ATO’s update of Taxation Ruling 2013/5 last year would apply from 1 July and when a pension was underpaid by more than one-twelfth of its value, it ceased for tax and superannuation purposes.
“Previously, it was for tax purposes only and the superannuation stream could continue, which meant that account-based pensions could continue if the next year’s pension was paid correctly,” Banton said during an online briefing today.
“That’s out the window from 2025 onwards because the pension now ceases [if there is an underpayment] and has to be commuted, while the fund isn’t entitled to any exempt current pension income in that year.
“We need to be clear here as well that it’s the member who must actively and validly tell the fund in writing that the pension is commuted and it stops from that date.”
She said the situation has led to industry discussion about whether trustees can pre-emptively document what happens if they underpay a pension in the same way they can nominate that amounts paid over the minimum can be classified as a lump sum to reduce their transfer balance account.
“The jury is out on this and only time will tell if it’s going to fly because of a couple of reasons,” she said.
“Firstly, starting a pension requires advice. If you’re the accountant and automatically restarting your client’s pension on 1 July, have you given financial advice?
“Additionally, is the pension the same pension? Does it meet the member’s circumstances, which may have changed since the original pension was put in place?
“Let’s not forget the trustees have also agreed to comply with Superannuation Industry (Supervision) Act legislation. They have signed the trust deed. They have signed the ATO trustee declaration.
“So can the trustee really put in place documentation that says: ‘If I fail at my trustee duties, this is what’s going to happen’?
“I don’t know. I’m not a lawyer. So we are in a wait-and-see situation, but it’s going to be complicated because of that timing issue for tax and super purposes.”
