Time for SMSF trustees to act on pension options, says Cavendish
Self-managed superannuation funds (SMSFs) which have failed their 'high probability' requirements should be thinking about exercising their options with respect to commuting existing lifetime or fixed-term pensions to market-linked pensions.
SMSF specialist firm Cavendish Superannuation has pointed to the fact that in June last year the Government introduced a modification to the social security arrangements that allowed a permanent waiver of debt relief for any SMSF that commuted an existing lifetime or fixed-term pension in favour of a market-linked pension.
It said that, previously, relief was provided to any SMSF that failed the so-called 'high probability' requirements and rolled over to a market-linked pension by 30 June 2010, but the relief was only ever temporary.
Cavendish said the effect of the new arrangements was that any SMSF could now stop an existing lifetime/fixed term pension regardless of whether they passed or failed the high probability requirements, based on actuarial investigation.
It said they could subsequently roll-over the proceeds of the pension to a market-linked pension, either within the SMSF or available externally.
However, it said the pension would lose its 'Asset Test Exempt' (ATE) status with Centrelink, which would result in Centrelink reassessing the person's future entitlement to the age pension.
Cavendish pointed out the reassessment also assumed the individual never had an ATE pension, allowing Centrelink to assess previous entitlements for up to five years.
"This is why the modification provides a waiver of debt, as the reassessment for five years would often result in an individual having to pay back benefits previously received; now the debt is still calculated but waived," it said.
Cavendish said a lifetime/fixed term annuity payable from an external provider was the only option available for a fund that had failed the high probability requirements and wanted to retain the asset test exemption status.
"Any restructure based on this scenario must be completed within 12 weeks of obtaining an actuarial certificate, which needed to be provided to Centrelink by 31 December 2011," it said.
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