Practitioners cautioned on popular pension strategies
A number of older pension strategies have regained popularity among SMSF practitioners, but key aspects of them are not being properly understood, warns an industry consultant.
Speaking to SMSF Adviser, Miller Super Solutions founder Tim Miller said SMSF practitioners are identifying older strategies and re-visiting them but do not necessarily understand the rules behind them.
“I can see some of these commutation strategies, [for example], creating problems for transition to retirement pensions, primarily because people will inevitably go over their maximums by virtue of not knowing that they’ve actually already used their unrestricted non-preserved [benefits],” said Mr Miller.
“Or they didn’t have as much unrestricted non-preserved as they thought they might have. So I can certainly see that as an issue.”
Mr Miller is one of several practitioners who say lack of clarity or a lack of understanding about how this strategy works can be especially problematic if the practitioner is still using a legacy administration system.
“If the [practitioner] isn’t dealing with a real-time processing environment, then they may be incorrectly identifying components that are no longer there and putting their clients into a troubled position,” he said.
Some of these pension strategies have regained practitioners' attention, according to Mr Miller, because the past couple of years have been quiet for the strategies in legislative terms – other than for a few minor changes.
“This whole concept of taking lump sums from transition to retirement pensions when you’ve got unrestricted non-preserved benefits is something that’s been in the legislation from day one, but because there’s been a few minor changes people have identified this strategy and it’s become popular or a little more mainstream [again],” he said.
Mr Miller noted that the ATO commissioner said earlier in the year the ATO would be focusing on pensions and pension-related issues.
“So, going under the minimum or over the maximum is going to be problematic for people,” he said.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.