Budget reforms causing pension confusion
The introduction of the $1.6 million pension transfer cap has left many accountants confused about pension establishment documentation, and this could have significant implications for trustees, says one SMSF auditor.
SuperAuditors director Shelley Banton says she has recently noticed common mistakes in pension documentation which could partly be attributed to confusion around the budget.
“One of the greatest fallacies in SMSF administration is that an SMSF trustee is entitled to an account-based pension once they reach their preservation age,” Mr Banton said.
“It’s easy to understand why the confusion exists, as the preservation age is one of the conditions of release as outlined in the SIS regulations.”
Ms Banton said the associated cashing restriction is often ignored in relation to the member’s preservation age.
“Once a member reaches their preservation age, they are only entitled to commence a transition to retirement income stream (TRIS) under the cashing restrictions, which means that a 4 per cent minimum and 10 per cent maximum of the opening member pension account balance must be paid.”
In practice, many accountants are using incorrect pension establishment minutes for members starting an account-based pension under the age of 65.
“The minutes incorrectly state that the member has now “reached their preservation age and satisfied a condition of release and wish to commence an account-based pension,” Ms Banton said.
“Getting it wrong can mean significant tax consequences for members receiving benefits in breach of the cashing rules or a condition of release.”