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Standing instructions important for ‘ad hoc pension payments’

phil la greca 800 smsf
Miranda Brownlee
13 May 2022 — 2 minute read

Having standing instructions in place for pensions can minimise the amount of paperwork needed for ad hoc pension payments and help ensure the minimum is met, said a technical expert.

In a recent article, SuperConcepts executive manager, SMSF technical and strategic services, Philip La Greca noted that some SMSF trustees are not specifying a specific pension payment level in their documentation when they commence a pension.

Mr La Greca stressed that the minimum level has significance due for strategies around managing the transfer balance cap.

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While the minimum pension can be used as the specified amount of pension, there needs to be instruction in respect of any amounts that are taken once that level has been achieved, he said.

“Specifying which of these multiple accounts these extra amounts should come from is critical to various tax and estate planning strategies if the member has multiple accounts,” he explained.

“One way of dealing with this is to make sure things [are] very clear, and because of strategies, the answers to some of these questions can be dealt with through standing instructions, but the standing instructions are only as good as the content.”

Where pension payments are ad hoc and at different levels and at different times throughout the year rather than a regular monthly stream, this makes the standing instructions even more necessary, he said.

The standing instructions, he said, are essential for determining whether these payments are pensions or not.

“One of the consequences that we see with this is that with ad hoc payments; there is very little, if any, a record about each payment; what we see is usually just a bank transaction that may have the narration pension payment,” he said.

At a minimum, Mr La Greca said there needs to be some correspondence from the member to the trustees requesting the payment of another amount.

It may need to specify more information if there are no standing instructions, he noted.

“[However], if we have the appropriate paperwork in play from the pension establishment, including standing instructions, the paperwork necessary for any ad hoc payments can be pretty minimal,” he said.

“It could be as simple as ‘please pay me in the amount of $X and treat it in accordance with my standing instructions’. The trustees can then rely on everything else they have on file rather than needing to collect all the other information again.”

Another issue that can arise with paperwork gaps is ensuring the SMSF has met the minimum pension level.

“One way to assist with this would be to establish a periodic monthly payment based on the minimum level. Some SMSFs do this, which makes it easier to satisfy the minimum and use a standing instruction to deal with the shortfall in June, requesting the trustees make a shortfall payment if the minimum has not been met by a specified date in June,” he stated.

Getting the paperwork right for pension payments helps to make the ongoing monitoring and compliance of pensions simpler and ensures that the SMSF is able to continue to claim its pension earnings exemption, said Mr La Greca.

Miranda Brownlee

Miranda Brownlee

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 also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: [email protected]momentummedia.com.au
Standing instructions important for ‘ad hoc pension payments’
phil la greca 800 smsf
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