Combining Accumulation and Pension Accounts

Hi

Just wondering if anyone can confirm to me that the following process for combining a pension and an accumulation account is OK. There is almost no info available (in books or otherwise) on this.

My thoughts were (assuming 1 July amalgamation to make things easy):

1. Member writes letter to trustees requesting pension be stopped and new pension with balance of existing pension and accumulation funds be started.

2. Trustees have a meeting to consider letter and approve request.

3. Trustees write to member saying request agreed to and outlining likely balance of new pension and requesting info from member eg amount of pension, TFN, etc.

4. Members advises trustees of requested information.

5. Trustees have meeting to confirm member's request.

Also, is there a need for a pension agreement (other than the letter/minute) and a specific PDS (the fund has a general PDS). Some say these are required, others don't.

Thanks fo any assistance.

Jenni

 

Hi Jenni,

First thing I would do is read the trust deed. The deed should give you instruction in regards to what needs to happen.

If you are still having difficulties find a SMSF specialist who can put together all the right documentation.

Don't forget the actuarial certificate also (for the previous year when you have pension and accumulation accounts in the same SMSF).

SM

 

SMSF Pension set up

Jenni,

You are roughly on the right track but there are a number of documents that must be adhered too in order to remain compliant when it comes to what you can and can't do with a SMSF and how you need to go about things.

Firstly you need to review the relevant legislation being the SIS act corporations act and relevant taxation legislation. You will find these do allow for pensions to be set up in SMSF's if the right conditions are met.

As Superman says the next stop is the Trust deed. This will contain the rules of the fund. If your deed is older than 2007 then is may be wise for you to have it reviewed as it is unlikely to enable you to take advantage of all the current account based pension features.

The deed will also tell you some things you need to do to set up a pension. If your deed doesn't allow for a trustee meeting as you described in your process then you should take this as a good guide your deed is not up to scratch and again get it reviewed and probably replaced.

Also note that the legislation provides differently for individual trustee funds vs those with corporate trustees. You need to be aware of how your fund is set up. Many funds have individual trustees as they are set up by people who don't understand the severe limitations this places on a fund entering pension phase. Funds with individual trustees are restricted to paying pension benefits only and cannot pay lump sum benefits (SIS act). As this is not checked in the audit standards this is a sleeper that may well come back to haunt a lot of trustees who are currently in breach.

The penalties for not getting the paperwork right can be huge so if you're not totally confident you understand the whole picture you must get advice. SMSF are one area that its just not worth winging it (ironic that they are called SELF-MANAGED- funds!)

I'd suggest you you have a look on the SPAA website if you don't have a decent adviser in your area to find someone local who is a specialist in this area. Alternatively feel free to contact me for more information.

Good luck

Jason
Brisbane Financial Planners | Financial Advice | Financial Advisor

Please note the above comments are general in nature only and you should seek professional advice from a licensed adviser before acting upon the above information.