From 1 July 2007, the Superannuation Industry (Supervision) Regulations (SISR) will provide for a simple form of account-based pension with five basic requirements1:
"So that's it then. Seems simple as can be?"
True, but it becomes a little more complex when any of the following factors are considered:
|The dates||The options|
|Between 1 July 2007 to 19 September 2007|| |
a person can commence
|After 20 September 2007||a person can commence only a new simple pension.|
Starting a market-linked pension before 20 September 2007 will improve some people's chances of receiving a part or full aged pension. This is because market-linked pensions are 'complying pensions', and half of the capital used to fund the pension is excluded from the aged-pension assets test.
From 20 September 2007, this assets test concession ends for pensions commenced on or after that date (along with the ability to pay a market-linked pension). So it may definitely be worth some people considering commencing a market-linked pension before 20 September 2007.
So there are three types of pensions which a person may commence to receive between 1 July 2007 and 19 September 2007. The new simpler pension and the old allocated and market linked pensions. The considerations are:
From 1 July 2007, sub-regulation 6.21(2A) of SISR provides that a death benefit may only revert to a person in the form of a pension if:
Therefore, the class of persons who are dependants for the purposes of receiving a pension is narrower than those who are generally considered as SIS dependants. This is because of the restrictive treatment of eligible children. We will call these people pension dependants.
Thankfully, the rules of the pension will only be deemed to not meet the standards if they 'result' in the pension being transferred to a non-pension dependant. So even if an existing pension provides that the pension is to revert to someone other than a pension dependant, the standards will still be met if the rules do not 'result' in the pension reverting to a non-pension-dependant. This may require an over-reaching clause in the pension payment agreement to the effect that the pension will be paid in accordance with superannuation law, or a specific amendment to the pension payment agreement.
For information on the new rules concerning the payment of death benefits generally, see [Danni to insert link]. As mentioned above, these rules affect pension planning because, if the pension does not or cannot revert to a pension dependant, then the tax free component and taxable component of the pension will be relevant to the amount of tax payable when the benefits are paid to any other eligible SIS dependant.
At the date this article went to publication, the regulations containing the new rules concerning pensions were still in draft, although the consultation period had ended. We will keep ClearLaw readers up to date with the progress of these changes.
For more information:
Julian Smith is a partner in the Maddocks Commercial team.
Julian advises extensively in the following areas:
Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.
Julian has been with Maddocks since undertaking articles in 2001.
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