Expert SMSF insights
How to navigate pension payments
By Phil La Greca
The 2017/18 financial year heralded changes to pension payments.
But let's begin first with the thing that hasn’t changed – it remains essential to ensure that the minimum pension level is paid for all pensions, and that the maximum level isn’t exceeded for transition-to-retirement income streams (TRISs).
Beyond this, there are some new aspects to be aware of.
Commutations no longer count toward minimum pension requirements
Partial commutations from a pension account no longer count towards meeting the minimum pension level, and any in-specie payment must be treated as a lump sum commutation. This means the minimum pension requirements must be met by ordinary cash payments.
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Taking more than the minimum pension? Here’s what to consider
Unless it’s a TRIS, the key question is whether to take any extra amount as an additional pension payment or as a partial commutation. Why it matters is that partial commutations reduce a person’s transfer balance account, potentially enabling further money to be transferred into pension phase in the future.
When treating an amount as a partial commutation, the member needs to formally notify the trustees of the SMSF prior to the amount being paid, otherwise the payment will need to be classified as a pension payment.
More than one account?
If the member has more than one account – pension and/or accumulation – then you need to decide which account the additional payment should be taken from.
It could be drawn from any number of pension accounts the member may have. In deciding which of these to use you need to consider the tax-free proportion of each pension account, any grandfathering that may apply (e.g. Centrelink payments or Seniors Health Card), the reversionary status of each pension and who the nominated beneficiaries are for each account.
The additional payment could also be drawn from an accumulation account – provided the member has one and there is a sufficient unrestricted non-preserved balance available.
How we can help our clients
We have designed a member instruction and trustee resolution to assist members in situations where payments in excess of the minimum pension level are required. These documents enable members to elect to receive amounts, on an ongoing basis, which are in excess of the minimum pension level as partial commutations without the need to make a formal election each time. Please contact your Client Service Manager if you would like these documents.
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