27th April 2016
There has been the usual intense pre budget speculation on superannuation changes clogging the media. I do not generally comment until after the budget however we have been receiving a spike in transition to retirement pension applications from concerned trustees so I thought it best to consider this topic.
There have been suggestions that the Government will make changes to transition to retirement pensions in the budget. I would agree with this though the nature of the changes remain unclear. One possibility is that TRISs will be banned from budget night. Naturally all existing pensions would be grandfathered so that is why there has been a rush to commence pensions now.
Assuming that eligibility to commence a TRIS has been satisfied, namely the member has reached age 56 and the necessary supporting balance is present in the fund, then the pension can be commenced. The question is what is required to commence the pension such that grandfathering will apply. It is common for a pension to commence on 1 July but the pension, paid as a single payment, to be delayed until the following June.
An issue with SMSFs is that full pension documents cannot be completed until the exact member balance is known. This means bringing all transactions and valuations to order at commencement date. Though this is largely achievable in a 24/7 system such as ours the nature of SMSFs means that contributions, unusual transactions, investments and manual valuations will often make this process more onerous than might be expected. The result is that it will be difficult to complete all urgent applications by next Tuesday unless the start date is 1 July.
There is a simple solution for those wishing to complete their documentation now. All that is required is a request from the member to the trustee to commence a pension and a response from the trustees to the member confirming the request has been received, that the pension has been commenced from the chosen date and that the details of the minimum pension required will be forwarded as soon as possible. This correspondence should be easy to achieve given that the trustees and the members are one and the same. The full documentation with exact pension amounts will then be available well before the end of this financial year deadline for payment.
It would be extremely unlikely that the Government would require an actual pension payment to have been made prior to Budget night as pensions may be paid at any time after commencement provided they are made prior to the end of the relevant financial year as previously mentioned. For those possessed of an abundance of caution a pension payment might be considered prior to Budget night. Such a payment amount could be minor as it’s only purpose would be to confirm activity.