As we approach the end of the year, we must ensure that minimum pension drawdowns have been satisfied. In the past, where the pension has lost its tax exemptness due to not meeting the minimum, we have been able to start a new pension from 1 July of the next year with the same tax components that existed in the failed pension. That is no longer the case except for death benefit pensions.

If the pension fails, it not only loses its tax exemption for the year, it also converts to accumulation from 1 July of that year and combines with any existing accumulation account resulting in a recalculation of tax components. This can undo a multi-account estate planning strategy designed to quarantine tax exempt components. It also means that any payments that were made now become lump sum drawdowns requiring a separate calculation of the tax components for each one.

Worse still, though the pension cessation TBAR references its value on 30 June of the year in which it failed, the new pension must commence from when the change was discovered which might not be until the end of year accounts are prepared sometime into the following financial year. Notably the transfer balance account reports required for the cessation of the original pension and the commencement of the new pension will then be different due to market movements.

This can all be avoided by making sure that the minimums are drawn. If in doubt as to the exact amount required, draw a little more.