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A member's benefits can
only be paid by being ‘cashed’
in accordance with the SIS Act. As a SMSF
trustee, you need to know the requirements
for paying benefits and to ensure that this
is only done in appropriate circumstances.
Under the Simpler Super reforms introduced
in the 2006 Budget, the rules for paying
benefits changed dramatically from 10 May
2006.
The rules from 10 May 2006
Under the new regime, a person will still
be able to access their superannuation once
they have reached their preservation age.
They will no longer be forced to draw down
their superannuation from a particular age.
A person can generally take their benefits
out of superannuation once they reach preservation
age and have retired. The preservation arrangements
have not been changed and the age of preservation
is increasing gradually from 55 to 60 between
the years 2015 and 2025. In addition, once
a person is aged 65 or more, they can take
their superannuation even if they have not
retired.
A person is now no longer forced to take
their superannuation once they reach a particular
age. Previously a person who was aged 65
or over and not working or 75 and over was
forced to draw down their superannuation.
These changes will mean that a person will
be able to keep their benefits in their
superannuation fund indefinitely, taking
as little or as much of their benefits as
they choose. If they choose to take their
benefits in pension form, then earnings
on the assets supporting that pension will
continue to be exempt from tax. Earnings
on other assets will continue to be subject
to tax as assessable income of the fund
at 15%.
Drawing an allocated pension
The new minimum standards for pensions will
require:
- payments
of a minimum amount to be made at least
annually, allowing pensioners to take
out as much as they wish above the minimum
(including cashing out the whole amount);
- an
amount or percentage of the pension cannot
be prescribed as being left-over when
the pension ceases; and
- the
pension can be transferred only on the
death of the pensioner to one of their
dependants or cashed as a lump sum to
the pensioner’s estate.
Will existing pension meet the new rules?
Pensions that meet existing rules and commenced
before 1 July 2007 will meet the new minimum
standards.
People who currently have an allocated pension
will be allowed to transfer to the new pension
from 1 July 2007 without the need to commute
their existing pension.
A guaranteed lifetime pension provided on
an arm’s length basis that meets relevant
existing requirements will also meet the
new rules.
Can a person still use the Transition
to Retirement rules?
The transition to retirement rules will
be amended to include pensions that meet
the new minimum standards.
From 1 July 2007, transition to retirement
pensions will allow no more than 10% of
the account balance (at the start of each
year) to be withdrawn in any one year. Pensions
that started before 1 July 2007 and complied
with rules for the transition to retirement
measure will be deemed to satisfy the new
requirements. Existing non-commutability
rules will continue to apply to transition
to retirement pensions.
Will a person be able to commute a complying
pension?
The plan did not mention whether these pensions
could be commuted under the new system.
Due to the potential detrimental impact
on members and product providers of allowing
commutation of guaranteed income pensions
which make up the majority of complying
pensions, the Government does not intend
to increase the ability for people to commute
a complying pension.
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