A technical specialist has reminded SMSF practitioners with clients drawing a pension they should be checking now as to whether minimum drawdown requirements have been met, adding the administration costs to correct this mistake could run into thousands of dollars.
Industry consultant Julie Steed said the ATO’s revised view of Tax Ruling 2013/5, which dictates when a pension starts and ends, was still creating “absolute havoc” with many pension phase SMSF members failing to appreciate how those rules are now applied.
“Historically, where we had a pension that failed the minimum pension requirements, we treated the financial year in which it failed as not having met the compliance requirements and therefore not entitled to exempt current pension income (ECPI), but from 1 July it started up again,” she told attendees of a recent webinar hosted by the Institute of Financial Professionals Australia.
“The ATO quite clearly communicated now there is no entitlement to ECPI until the new pension is commenced through a requirement from the members making a conscious decision to commute the failed pension and start a second pension.
“Now, in September, you may have clients who are in the process of doing their annual reviews and identify they didn’t meet the minimum pension payments for the 2025/26 financial year.
“If that’s the case, make sure you’re checking that information and making that conscious decision to recommence the pension as quickly as possible.”
Steed reminded practitioners apart from losing ECPI until a new pension has commenced, none of the payments would be considered pension payments but rather viewed as lump sums and would need to untangled at significant cost.
“If you have multiple pensions that have failed, they ceased to be an income stream and ceased to have their own identity, so what you have now is a hodgepodge of accumulation accounts,” she explained.
“If I had pension payments that were 100 per cent tax-free that I intended, on my death, to go to my adult children from a first relationship, and then taxable component pensions going to my second spouse, that is now all intermingled with any existing accumulation accounts.
“The consequences now of failing the minimum pension standards are enormous, and I reliably predict one failed pension is about a $5000 administration rework.
“If I think about all of the things that I have to recalculate and all the things that I have to re-report, then that’s a massive piece of administration work.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason