Two SMSF technical specialists have highlighted the difficulties practitioners and trustees will face in dealing with pensions that have failed to meet minimum payment requirements given rectification of the problem is not contained in one part of superannuation law.
Heffron head of education and content Lyn Formica said an income stream that had failed the payment standards would revert to an accumulation interest at the beginning of the year the breach occurred as part of the changes introduced in the revisions to Taxation Ruling (TR) 2013/5, but this change was proving very complex to process.
“We’re dealing with very different parts of the law coming together – the Superannuation Industry (Supervision) provisions, the Income Tax Assessment Acts, transfer balance cap rules and other bits and pieces. None of it’s going to make sense. None of it is logical,” Formica noted in a webinar yesterday.
Heffron SMSF specialist Sean Johnston added the administration firm had found there was still no simple solution for dealing with these types of issues.
“It is really difficult to process in any software as far as I understand it. We use one particular software, but I’ve had a chat to multiple software providers and I don’t think anybody’s got a great solution, simply because the law asks you to do things that don’t necessarily talk nicely to each other,” Johnston stated.
Formica revealed Heffron had been developing a process to address the issue where failing to meet minimum pension payments means having to commute the exiting income stream and start a new one to ensure the beneficiary can continue to claim exempt current pension income (ECPI).
“At our Super Intensive Day, we will talk you through what to watch for in your software because you will have to process that fund multiple times. We worked out it was three times that we will process the pension to get different results,” she explained.
She also warned practitioners and trustees they could not just minute the fact minimum pensions had not been paid and proceed to start a new one.
“For tax purposes the pension has ceased. It has not ceased for super law purposes,” she pointed out.
“We are going to have to stop that pension, commute it and then restart a pension if we want to get ECPI back in respect of those monies.
“So we’re going to have documentation to commute the pension. We’re going to have documentation to start the pension.
“We will also need an acknowledgement from the trustee to say: ‘We’ve not paid all of the pension and we’re seeking your instructions on what you want us to do with this particular pension account’ and that’s when the member would say: ‘I’d like to commute and start another pension.’”
