Beware the Pension Trap

11 May 2020

Written by

David Busoli, Principal

There is a danger that new pensions may be commenced that inadvertently breach the transfer balance cap. A member’s existing transfer balance account is unaffected by a drop in market valuations, so the member’s current pension balance is no guide to their available cap. In any case, the TBA should be checked – just in case – as I have no doubt that a significant amount of transfer balance account information held by the ATO is wrong. I am convinced of this due to the plethora of incorrect breach notices that were issued at the time the TBA regime commenced. The majority of these were due to errors in processing and reporting, so were subsequently fixed, but only those errors that created a TBC breach were identified. Errors that did not cause a breach were not discovered and lie in wait to cause a breach notice at the commencement of a future new pension. Rectification is time consuming.

Currently, the member’s transfer balance account information can only be obtained by the member accessing their MyGov account or on application by their personal tax agent. This does not encourage either efficiency or proactivity. What is required, at a minimum, is for the member to be able to grant authority to third parties, such as SMSF administrators and financial planners, to access this data. Even better would be the availability of data feeds to SMSF administration software.

Unfortunately, the ATO did not devote any priority to this prior to COVD-19 and have certainly been too busy to focus on it since. Until they do, we will just have to muddle on as best we can within a faulty system.

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