Review Super Funds and Minimum Pension Payments Before 30 June

A meeting of the NTLG Superannuation Technical Sub-group that took place in Canberra on 8 September 2009 contains an important agenda item on SMSF and other super funds with members in pension mode that trustees and advisors should carefully note in the run up to 30 June.

Failure to pay the minimum prescribed pension amount even by a small amount jeopardises the fund’s ability to claim exempt current pension income as this is only available to funds paying pensions that meet the requisite SIS provisions and thus exposes such current pension income to tax.

The question was put at the meeting whether a shortfall could be accrued and payed in a subsequent year which would satisfy the relevant regulatory requirements.

Question: If a fund trustee fails to physically pay sufficient pension payments to meet the minimum pension obligations under SIS Regulation 1.06, is it acceptable for the fund to accrue the shortfall in its financial statements and ensure that this additional amount is paid in the following year?

ATO Initial Response: No

The ATO’s reasons can be read here in the minutes of the meeting.

Some interesting discussion ensued:

A member asked if the draft response takes into consideration the implications for exempt current pension income. The Tax Office stated that the issue is being considered in the work the Tax Office is doing on exempt current pension income and when and how a superannuation income stream can come to an end.


The Tax Office asked whether members had considered whether aspects of trust law can be relevant? For example, if having commenced a pension, a trustee is required by the trust deed to pay a pension that satisfies the requirements of the superannuation law, what are the trust law consequences of a trustee failing to fulfil that obligation?


Could that situation be compared with the case of income to which a beneficiary of a trust is presently entitled? That is, could the shortfall in the amount payable under the pension, be required to be held on a separate trust because equity would treat as done that which ought to be done?


The members advised that was not something they had considered.


The Tax Office advised that even if such an approach could be argued, there would remain significant practical difficulties. For example, it might be necessary to deal with the case when a clear attempt to the pay the pension is made quite separately from where no genuine attempt to meet the minimum payment requirement has been made.


The timing issue could be an important consideration: what happens if the member simply expected a single annual payment of the pension, having agreed to receive that amount at the end of June, and unforeseen circumstances occur and the payment is not paid until early July?

I will be advising of any developments as they are announced as it is an area where mistakes can occur due to inadvertent errors or delays.

Now is a good time to review funds paying pensions and ensure the minimum pensions can be paid as leaving this too late could mean facing delays in realising assets outside the trustees control. Note that minimum pension level for the year ended 30 June 2010 has been reduced by half by the government due to difficulties that can arise in realising assets in the current economic climate. In addition the minimum pension level increases as the pensioner’s age increases, increasing 1% for every 5 years after age 65, as determined by the member’s age as at 1st July and their account balance as at 30th June.

Whether the government will retain the 50% reduction in the minimum level of pension payable into 2011 is unknown.

For more information contact me at my office on (07) 3220 2244 or by email using the Contact Menu above.