Many in the industry are aware of the potential trap caused by the transfer balance cap (‘TBC’) for SMSF members who receive payments above the account-based pension (‘ABP’) minimum annual amount. Naturally, unless appropriate documentation is in place prior to the payment being made, the entire amount of the payment will constitute a pension payment. Given that each person only has one lifetime TBC (currently $1.6 million) and recent data suggests that, on average, people withdraw more than 30% above the minimum pension payment each financial year, having appropriate documents in place can significantly assist in preserving a person’s transfer balance account.
DBA Lawyers has been one of the front-runners in designing a suite of documentation to record a strategy to avoid this trap.
Potential trap also applies to TRISs in retirement phase
As a result of the super reforms that came into operation on 1 July 2017, there are now two types of transition to retirement income streams (‘TRISs’): TRISs in retirement phase and TRISs not in retirement phase. The potential trap caused by the TBC also applies to SMSF members who receive payments above the minimum annual amount for a TRIS in retirement phase. This issue has been less heralded, but is a practical issue since many SMSF members may be receiving a TRIS in retirement phase.
Update to Payments above ABP minimum documentation
Due to recent client feedback, our Payments above ABP minimum documentation has been updated to expand its scope. For orders placed on or after 1 November 2018, this suite of documentation can be used in respect of ABPs and TRISs in retirement phase, collectively referred to in this suite of documentation as Pensions.
Broadly, this suite of documentation applies to treat payments above a Pension’s minimum annual amount from the same SMSF as constituting lump sums:
- firstly, from the Member’s accumulation interest; or
- secondly, if the Member has no accumulation interest — to constitute partially commuted lump sums (that give rise to debits to the Member’s transfer balance account).
Additional suites of documentation are needed if there is a different member or a different SMSF. Expert advice should also be obtained in respect of pensions that are of a different type to the Pensions mentioned above.
For more information on the issue of payments above ABP minimum, please refer to the following links:
DBA Lawyers offers documentation to prospectively record the above strategy for any member who wishes to protect the capital supporting their Pension(s) from being exhausted beyond the relevant minimum pension amount. For more information, please visit https://www.dbalawyers.com.au/payments-abp-minimum/.
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Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice.