In a recent SMSF Adviser webcast, BGL Corporate Solutions product manager Anthony Fernandez said one of the main things that SMSF professionals and their clients need to watch out for in the lead-up to the end of the financial year is ensuring the minimum pension amount has been paid.
Mr Fernandez said this can sometimes be a problem where the fund has not been finalised properly from the year before, as it means the minimum amounts for the current year may have been calculated incorrectly.
“Also, if the member has jumped from 74 to 75, for example, there’s going to be an increase in the percentage that needs to be drawn down, which they need to bear in mind,” he added.
“That increase in the pension percentage is something you need to plan for, because you need to ensure you have the liquidity in the fund to be able to take that money out.”
Speaking in the same webcast, Smarter SMSF chief executive Aaron Dunn stressed that the failure to withdraw the minimum where it’s a reversionary pension is particularly problematic.
“Failure to take the minimum pension on a reversionary pension is a diabolical outcome because, if you can’t take a pension, then you are forced to take a lump sum. So, it’s absolutely critical,” he cautioned.
Given the transfer balance account reporting requirements, Mr Dunn said the timeliness of when pensions are started is also important now.
“An accountant might say, well, the optimum tax position is to go back and say that there was an oral decision or a request to say that it was done on 1 July, but if we’re in April or May, well, that actually needed to be reported by 28 October,” he explained.
“So, there’s actually a strategic decision that needs to be made around the timeliness of when that pension starts, so it might not be that we’re trying to max out the tax effect of that particular year.”
Mr Dunn also reminded SMSF practitioners that the ATO has updated its market valuation guidelines on its website in respect to how it deals with events.
“You don’t actually need the account balance at the time if you use fair and reasoned process to deal with that,” he said.
with respect to comments on timeliness of pension. Please confirm that this only applies to full retirement pension accounts and NOT those in TRIS
A TRIS doesn’t have to be reported until a condition of release is met so TBAR is not required on commencement.
A death benefit pension can be both a retirement phase TRIS as well as a standard ABP. This is not to do with TBAR, it is about pension rules and the implications for not drawing the minimum. If a death benefit stops, even inadvertently, it must be paid as a lump sum and can’t remain in the fund and be restarted.
Outside of death benefit pensions, the failure to pay a minimum TRIS that is not in the retirement phase is also a catastrophe as lump-sums are not permitted so you have a breach of the rules.
The problem is, failure to take the minimum pension means it stops. Once a death benefit pension stops, it must be paid out of the fund
This is my understanding as well and what I imagine Aaron was getting at but it seems that the article doesn’t make this clear?
Can’t see a difference between non rev pension and rev pension in above situation as both will then be treated as lump sum and as ceasing on 1st July of that financial year for tax purposes. For TBAR, the cessation of the pension is as at 30 June of that financial year and value at 30 June not 1 July.
What is different about a reversionary pension that means you’d have to take a lump sum if you didn’t make the pension payment? Is this before or after death of the original pensioner?