Have you ever come across a SMSF client where the pension documentation is either lost, missing or insufficient? I’m sure you have, especially when clients switch from a former accountant or administrator to you. It’s probably not because the dog ate them, but rather
So, how do you technically and practically deal with this situation?
In some instances, details of the pension may exist in a previous SMSF software file (e.g BGL Simple Fund – if you get access to it from the former service provider), such as current balance, tax-free proportion, etc. In other circumstances, piecing this together can be an absolute nightmare…
In 2018, the decision handed down in Re Narumon  QSC 185, provided for the first time some key insight into how the courts will look at circumstances where documentation cannot be found. In this particular case, luckily for Narumon Giles (spouse) as the reversionary beneficiary, the income stream was a lifetime complying pension that was able to determine the reversionary status based upon old pension tables for these type of defined benefit pensions.
In the current environment however, this is much more difficult to determine with the payment of account based pensions (and TRISs) as the reversionary status has no bearing on the level of income to be paid, and any reporting to the ATO does not need to include such information. This lack of information therefore may ultimately put into question how a death benefit may be paid, instead relying on instructions within a binding death benefit nomination, or potentially worse, leaving it to the discretion of the trustee(s).
Just commute and re-purchase?
The obvious initial response may be to simply commute and repurchase the income stream? Well, unfortunately, it’s not that easy…
For example, what if:
- the pension pre-dates 1 January 2015 and is subject to the grandfathering rules for the income test with the member’s age pension? or
- the commutation results in the benefits going back into accumulation phase, where post 1 July 2017 the member now has a balance due the the transfer balance cap. The outcome now is a potentially contaminate high tax-free proportion of the income stream.
Enter, the Pension Deed of Affirmation and Confirmation (or Lost Pension Deed).
Having worked alongside SMSF specialist lawyers, Ian Glenister (Legal Officer, Smarter SMSF) and Chris Hill (Hill Legal), this Pension Deed and Replacement Pension Agreement (RPA) we believe may be the first of its kind within the SMSF industry that follows the decisions handed down in the Narumon judgment.
As members, we are excited to give you first access to this document (in beta) before its general release.
When completing this order, the following documents will be generated:
- Pension Deed of Affirmation & Confirmation; and
- Replacement Pension Agreement
Importantly as part of the Lost Pension Deed, it will look to various actions undertaken by the member/trustee in trying to locate the pension documents, along with understanding what information is available to support the existence of the income stream.
We have created the following screencast video that goes through the ordering process and completed documents:
To find out more about our Lost Pension Deed, you can visit our document page, https://smartersmsf.com/documents/lost-pension-deed/