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The client (aged 69) had a pension account balance of $1M at 30/06/2020 Made up of 50% NCC and 50% CC. On 06/07/2020 the client commuted $200,000 (50/50) - the remaining balance in pension phase is $800,000. For the 2021 financial year my understanding is that the pension should be $25,000 for the 2021 financial year and not $20,000 as the client's accountant is insisting that it should be. Any comments would be welcome as I am currently completing the 2021 audit.
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Hi Ronald
As per the ATO:
"where the commutation is only partial, trustees must ensure the minimum amount is paid before commutation, or that sufficient assets remain to meet the minimum pension payment standards for that year, based on the original value of the income stream at the start of the year."
On that basis the minimum pension for 2020/21 is $1,000,000 at 2.5% (as aged 69) = $25,000.
The ATO provides further advice on this (that does provide certain exemptions re the minimum amount to be paid) at:
The ATO states:
"Commutations
Commutation generally refers to the process of converting a SMSF pension or annuity into a lump sum payment. This payment can be paid to the beneficiary, rolled over to another product within the same super fund, or rolled over to another super fund.
Each commutation is required to be reported to us as a transfer balance cap event on a transfer balance account report (TBAR). Find out more about event-based reporting for SMSFs.
Making a large pension drawdown (rather than partially commuting) does not reduce your transfer balance and would not bring you under your personal transfer balance cap. To reduce your transfer balance, you must commute an amount of your super income stream.
From 1 July 2017, a number of new super rules need to be considered when actioning a request to commute a pension:
partial commutations no longer count towards the annual minimum pension payment amount
where the commutation is for the full amount of the pension, trustees must ensure the minimum pension amount has been paid before actioning the commutation.
where the commutation is only partial, trustees must ensure the minimum amount is paid before commutation, or that sufficient assets remain to meet the minimum pension payment standards for that year, based on the original value of the income stream at the start of the year.
The requirement to make a minimum payment prior to commutation does not apply where:
the commutation arises on the death of a member, or
the sole purpose of the commutation is to
pay a super contributions surcharge liability
give effect to a payment split under the family law provisions
give effect to a client’s right to return a financial product under the corporation's law provisions."
Thanks
SMSF AAA