SMSF members who fail to meet their minimum pension payments for a financial year will not comply with the revised ATO rules until any outstanding amounts have been settled before commencing a new retirement income stream, a sector specialist has said.
Heffron head of education and content Lyn Formica said the ATO’s revision of Taxation Ruling 2013/5 last year to require pensions that failed to make minimum payments to be commuted and restarted to claim exempt current pension income did not cancel out any remaining payments.
Speaking during a practitioner briefing today, Formica noted a failed pension still had to be pay its minimum requirements.
“If my client hasn’t taken any pension payments in the period from 1 July last year to today, I can’t restart that pension because I need a valid commutation,” she explained.
“Until we get guidance otherwise from the ATO, we would suggest you need to still take your pro-rata minimum for this period in this commutation year.”
Heffron senior SMSF specialist Annie Dawson added these payments had to be made because the failure to meet the minimums did not void the pension.
“Even though the pension has failed for tax purposes, it still exists,” Dawson said.
“So if it failed in the 2025 year and I was going to stop and restart it because I want to get rid of that tainted pension, I still have to play by the rules and have to pay the pro-rated minimum.
“If I stop it at the end of December, I’ve got to pay half of this year’s minimum pension first, then turn it off and go again with my new pension.”
Formica pointed out the pension remains active because it is a contractual relationship between the fund and the member, and the rules do not allow any payments to be negated or sidestepped.
“There’s still a requirement under Superannuation Industry (Supervision) Regulation 1.07d to pay a pro-rata minimum before we commute pensions,” she said.
“We haven’t had any alternative guidance from the ATO to say otherwise. So our approach is we don’t want to make it worse by attempting to fix it, so we are taking a pro-rata minimum in these cases.”
