SMSF pensions best way to go for flexibility and control

“The flexibility and control come in really handy in an SMSF pension phase, and it’s something SMSF clients really can’t get elsewhere,” she said.

“It lets you have control right from the beginning of when a pension phase starts, there’s no forms to fill in and it’s really just as simple as the trustee’s needs.

“They decide when they're going to start a pension and yes, they have to document it, and yes, that's really, really important, but the control is there.

“It's happened as soon as that decision is made, and then that control just continues as they [the members] decide how and when they take their pension payments.”

Ms Heffron said many clients have both pension and accumulation accounts and while contributions might still be coming into the accumulation accounts, it means the cash flow for pensions is always there and can continue.

“There's a whole lot of spin-off benefits from that, that I think paint a picture of why pension SMSFs really hit a high point in terms of value,” she said.

“I think when people move to pension phase, they have to make sure they've documented the important decisions that trustees have made or the important criteria that were met before that decision was made, but the paperwork itself isn't the barrier to action.

“You could have two trustees agree on Monday morning that they’re going to start a pension, that they're going on to internet banking and move their first pension payment into their personal bank account that same day.

“Of course the documentation is really important and that they document what they've just decided, but it's not a barrier - it doesn't stop them doing things.”

Although there are pension rules outlined in Regulation 6.17, Ms Heffron said there are no real rules about how those pension documents get set up.

However, there are some administration details which do need to be considered, she said.

One of those is ensuring that everything on the documentation is correct – not just the exact balance of the member’s account but that they are dated and signed correctly.

“For example, if the documents are sent out via DocuSign, and they come back and they're clearly not signed on that day, but the date at the top still says for exaple 1 July or the particular day they were sent – that’s one of my pet peeves,” she said.

“My other pet peeve is not being clear enough in the pension documentation about what you're going to want in the future - the pension reversionary.

“What's the tax-free proportion and all those things that you might want to refer to at a later time. That absolutely should be in the pension documentation as far as I'm concerned, just because it's a convenient spot to put it.”

These are even more important in terms of conidition of release, she said, especially between that grey area of 60 to 65 years.

“For example, if the trustee has started a pension and ticked all the boxes for documentation, then maybe the next year they want to start another pension and they just think they can start that other pension without taking into account the types of elements of where the earnings are coming in,” she said.

“If they've got some still in accumulation, that’s still potentially restricted and preserved because it's coming in as earnings and it's not necessarily going into that unrestricted non-reserves.

“It means you’ve got a whole bunch of different elements and bits and pieces that you have to deal with in terms of these pensions but also understanding that you have to meet a condition of release each and every time up until the age of 65 that you want to start a new pension and the documentation we see coming through doesn't necessarily reflect that.”