During end of year planning for self-managed superannuation funds (SMSF) one way to provide distinct value for your SMSF clients is to ensure that they do not become liable to pay any unnecessary tax.

Some SMSF trustees may be eligible to claim exempt current pension income (ECPI) based on some or all of their assets being in the pension phase.

Account-based and transition to retirement pensions are required to meet minimum pension standards each year. This involves making a pension payment in form and effect based on the age of the pensioner and the pension account balance at 1 July prior to 30 June.

Where the pension commenced during the financial year the minimum pension payment required will be based on the account balance at commencement and the minimum payment will be pro-rated based on the number of days remaining in the financial year. In addition, if the pension commenced in June no pension payment is required in that year to meet the pension standards.

The minimum pension payments required by the SIS Regulations are:

Remember a pension payment must be physically paid out of the fund – a journal entry is not sufficient.

Under the minimum pension standards a transition to retirement pension has a further restriction to ensure that the payment made does not exceed 10% of the 1 July (or commencement if started during the year) account balance.

If the minimum pension standards are not met, the ATO may disallow the tax exempt status of the pension. This means SMSF trustees could potentially pay tax on all income, as opposed to none.

Each year as 30 June approaches is the time to review client pensions and ensure that your trustees do not miss out on their valuable tax exemption. Assisting in meeting pension compliance requirements will provide value to your clients’ continued annual service.

How can Accurium help?

Accurium has tools that can assist you and your trustees as they move into retirement. Our pension payment report provides a letter which outlines the pension payment requirements that the fund must meet in order to be eligible to claim ECPI in a financial year.

This report is based on calculations completed by our actuarial model of the pension standards for market linked, account-based and transition to retirement pensions.

The report provides you and the trustee with peace of mind that you have the precise information needed to ensure appropriate pension payments are made so that each pension meets the pension standards and your trustees remain eligible to receive the tax benefits to which they are entitled.