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Where SMSF is winding up in the middle of the year, say in March, does the calculation of Minimum pension needs to be prorate to the number of days in pension ( i.e. 8 months / 365 ) or needs to be calculated for the full year ?
Because i thought pension ceases on the day fund winds up ?
Appreciate your response.
Thank you so much !!
Hi SP
Yes if a pension is commuted and the Fund is wound up in a year a pro rata minimum pension is payable (prior to commutation).
Refer:
"Full commutation
If a pension that commenced on or after 20 September 2007 is to be commuted in full, the SMSF must ensure at least a minimum amount is paid from the pension beforehand. This is because the pension ceases at the time the decision is documented to fully commute.
The minimum payment must occur in the same financial year as the commutation.
The amount paid must be at least the pro rata of the minimum annual payment amount.
For pensions commencing in the same financial year they are commuted, the pro-rata minimum annual payment amount is calculated using the number of days from the commencement day of the pension, to the day it is commuted.
Pro rata minimum payment amount = minimum annual payment amount × days from the commencement day to the day pension commuted ÷ 365 (or 366 in a leap year).
Example: full commutation in year pension commenced David commences an account-based pension on 1 January 2016 at 58 years old. He decides to commute the pension on 30 May 2016, which is in the same financial year the pension began. The account balance of the pension on 1 January 2016 is $235,000. The first step is to determine the minimum annual payment for 2015–16. Based on the account balance at the commencement day of the pension, the minimum annual payment amount is $9,400 (4% of $235,000). However, as the pension commenced after 1 July 2015, the minimum payment amount is calculated proportionately from the commencement day to the end of the financial year:
$9,400 (minimum annual payment amount) × 182 (the number of days from the commencement day of the pension to the end of the financial year) ÷ 366 (2016 was a leap year) = $4,674.31
Therefore, the minimum annual payment required for 2015–16 is $4,670 ($4,674 rounded down to the nearest $10). The next step is to calculate the minimum payment prior to commutation. The number of days from the start of the pension (1 January 2016) to the day the pension is to be commuted (30 May 2016) is 151. The pro-rata minimum payment amount for the pension will be $4,670 × (151 ÷ 366) = $1,926.69. Therefore, David must be paid at least a minimum amount of $1,926.69 (rounded to the nearest 10 whole dollars) prior to the commutation.
For commutations in subsequent years, the pro-rata minimum payment amount is calculated based on the number of days from the beginning of the financial year (1 July) in which the pension is commuted to the day the commutation takes place. Pro-rata minimum payment amount = minimum annual payment amount × days from 1 July to day pension commuted ÷ 365 (or 366 in a leap year). End of example
Example: full commutation in later year John commences an account-based pension on 1 January 2016 at 58 years old. He decides to commute the pension on 31 July 2016 – which is not in the same financial year as the pension began. The minimum payments were made from the fund during the first year, as required. The account balance of the pension on 1 July 2016 is $240,000. The minimum annual payment amount from the pension in 2016–17 is $9,600 (4% of $240,000). The number of days from the beginning of the financial year (1 July) to the day the pension is commuted is 31. The pro-rata minimum payment amount for the pension will be $9,600 × 31 ÷ 365 = $815.34. As no payments have been made from the pension in 2016–17, the fund must pay John a minimum amount of $815.34 prior to the commutation."
Thanks
SMSF AAA