An SMSF stakeholder has recommended trustees put a standing request in place to allow easier and more efficient transfer balance cap (TBC) management when income stream drawdowns exceed the minimum pension payment required by law.
Specifically, Accurium technical superannuation adviser Jason Hurst was referring to situations where any amount withdrawn from an income stream above the minimum pension be treated as a lump sum payment.
“If we want to lock in a request so that the first part [of a withdrawal from an income stream] is treated as a minimum [pension payment] and the remainder is treated as a lump sum commutation, we could have some sort of standing order,” Hurst told attendees of a technical webinar held today.
“[That would be] something along the lines of [the member] is requesting that the trustee initially treats payments from pension account ‘x’ as pension payments and once the minimum is reached, then any further payments for that financial year be treated as lump sum commutations.
“[It means the member] wouldn’t have to put in a written request [to the trustees to treat the payments in this manner] every time [the minimum amount is exceeded].”
According to Hurst, it is prudent to treat any payment over the prescribed minimum pension as a commutation to manage a member’s personal TBC in the event they require some flexibility regarding the threshold.
“There’s not really a major downside in [treating pension drawdowns over the minimum] that way. [It does require] a little bit more reporting, but tax-wise it’s all the same,” he explained.
“[Doing so means] if we have those transfer balance cap debits each year, it is freeing up [cap] space.”
He pointed out this would potentially allow the member to move any future non-concessional contributions or downsizer contributions over to a pension interest.
“[Also] having any transfer balance cap space up your sleeve may be handy perhaps [when the member’s] partner passes away as they might have some space to keep more money in super [if they become the recipient of a reversionary pension],” he said.
