New Pension Payment Rules – Simplified?
From 1 July 2007, the Superannuation Industry (Supervision) Regulations (‘SISR’) will fundamentally change the current pension rules for Australian complying superannuation funds.
The new rules
Under the SISR, there will now be a simple form of account-based pension with 5 basic requirements:
- A minimum of one payment has to be made to the member every year;
- The total pension benefits paid to a member every year has to satisfy minimum amounts based on the pensioner’s current age. E.g. A pensioner aged between 55 to 64 on 1 July during a year of the pension must be paid 4% of the pension’s account balance, a pensioner aged 65 to 74 on the same day must be paid 5%, a pensioner aged 75 to 84 must be paid 6% a pensioner aged 85 to 94 must be paid 10% and a pensioner aged more than 95 must be paid 14%;
- The pension may only be transferred on the death of the beneficiary (whether or not they are the original beneficiary or a reversionary);
- The pension’s capital value and the income from it cannot be used for borrowing; and
- The pension can only be commuted in limited circumstances, including if the minimum amount of pension payments for the year have been made or on the death of the pensioner.
If you are one of these people…
We note that during this transitional period, there will now be an additional degree of complexity for certain people, being those who fall within the following categories:
- A person wants to commence a new pension before 1 July 2007;
- A person wants to commute an existing pension to commence a new pension, before 1 July 2007;
- A person wants to commence a pension between 1 July 2007 to 19 September 2007 as during this period, 3 forms of account based pensions will be available (the new pension; the existing form of allocation pension and the existing form of market-linked (also known as allocated) pension);
- Pensioners who are planning for reversion of the pension; and
- On the death of a pensioner.
It would be prudent for those who fall within the above categories to seek further advice.
Benefit of commuting existing pensions before 1 July 2007
It may be worth noting that a person receiving more than one allocated pension could benefit from commuting those pensions and rolling them into a single allocated pension before 1 July 2007. As such, those who are currently in such a position should consult their advisors to determine if this would be an appropriate move.
This information has been prepared in good faith, is in the nature of general comment only, and neither purports, nor is intended, to be advice on any particular matter. You should not act or rely upon any matter or information contained in or implied without taking appropriate professional advice which relates specifically to your particular circumstances. The authors and consultants expressly disclaim all and any liability to any person (whether a reader or not) who acts or fails to act as a consequence of reliance upon the whole or any part of this information.
