Retirement, pensions and superannuation are topics all Australians need to think about – and the sooner the better. For tax practitioners, understanding the ins-and-outs of a client’s rights in these areas is vital to ensuring you are giving the best advice to allow for a rich and full retirement for those you work with.

Recently, Julie Steed, Senior Technical Services Manager at Australian Executor Trustees, who will be presenting a session at our upcoming Superannuation Intensive on SMSFs and pensions shared with us a few key details about what we can expect from her presentation.

In her session, Julie will review current issues and strategies in managing pensions in SMSFs by taking a deep dive into complying pensions and the Government’s proposed amnesty. Delving into a series of case studies to illustrate her topic, Julie will cover important aspects of pensions in SMSFs, including transition to retirement pensions, indexation of the transfer balance cap, death benefit pensions and defined benefit pensions.

“There are still aspects of dealing with pensions in SMSFs that are not well understood by members and practitioners that can have adverse tax consequences. Most commonly the tax issues arise when dealing with the transfer balance cap. The legacy pensions issues are also significant for impacted individuals, even though there are only a relatively small number that remain in the SMSF sector,” Julie said.

“I have been a passionate advocate for changes to the legacy pension rules since at least 2017 as I have seen first-hand the hardships that have been caused by the antiquated pension rules. The announcement of a two-year amnesty in the 2021 Federal Budget was a welcome (if not long overdue) acknowledgement that changes are needed,” Julie said.

Sadly, there are many such examples of the management – or mismanagement – of pensions has had a huge impact on clients.

“I have seen clients with significant excess transfer balance determinations because they haven’t realised how a death benefit pension is treated for the transfer balance cap. This is often exacerbated because the SMSF only completes the transfer balance reporting many months after the event,” she said.

“I have also seen multiple examples of elderly clients who have been unable to access their legacy pension to fund age care, who are trapped in expensive SMSFs that they are no longer suited to or who have been forced to restructure their legacy pension to another non commutable pension with significantly reduced income payments.”

The amnesty, according to a 2021-22 government factsheet, means “A two-year period will be provided for conversion of market-linked, life-expectancy and lifetime pension and annuity products.”

Taking part in this amnesty to convert pensions is not compulsory, but the factsheet goes on to say that retirees who do choose to take part will be able to “completely exit” these pension products by “fully commuting the product and transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase.” Retirees then have the option to take a lump sum benefit, start with a new pension product or retain the funds in an accumulation account.

“The opportunity to restructure legacy pensions under the announced amnesty may provide an opportunity for practitioners to significantly improve a client’s position,” Julie explained.

“It may not just improve their financial position but also potentially the opportunity to wind-up an SMSF that is no longer suitable for a client but within which they remain trapped because of a legacy pension. Understanding the (illogical) new transfer balance debit calculations for legacy pensions may also assist in avoiding an excess transfer balance amount.”

When dealing with a topic that can have such a long-lasting impact for clients, tax practitioners need to be across the latest and best thinking. After Julie’s session, delegates should walk away with a good understanding of, “the workings of legacy pensions, their pitfalls and solutions that can assist, even before an amnesty is implemented.”

Catch Julie online at the Superannuation Intensive, this 30–31 March. Find out more and register your attendance.

About Julie Steed

Julie Steed, Senior Technical Services Manager at Australian Executor Trustees, has more than 30 years’ experience in the superannuation industry as a technical specialist, consultant and client services manager. Julie is responsible for the provision of superannuation technical information, specialising in small funds. Julie is passionate about helping people with superannuation and is actively involved in educational aspects of the industry, for both practitioners and individuals. Julie is a Senior Fellow of Finsia, a Fellow of ASFA and an accredited SMSF Specialist Advisor™ with the SMSF Association. Julie was awarded the SMSF Association’s 2020 Chair Award for outstanding contribution to the SMSF industry.