For pensioners who are already receiving a complying defined benefit pension (such as a life pension) through their SMSF, the full exemption they receive for social security means tests is something to be protected. There are two main reasons:
The problem has been that if pensioners were no longer able to run a SMSF they risked losing the full exemption if they stopped the defined benefit pension and sought to continue it through a retail provider. The change allows them to do that and to still enjoy the exemption.
Now the Government has made a determination (Determination) concerning an income stream arising from closing a SMSF. The Determination states that an income stream (such as a defined benefit pension described above) may continue to receive the exemption if:
This article deals only with the transfer of defined benefit pensions from SMSFs to other retail providers. However, the Determination covers a range of other circumstances — for example: if a pensioner is being paid a market-linked pension which receives a 50% exemption from a retail provider, and wishes to exercise choice and transfer to another retail provider.
A new income stream can be considered as an "asset-test exempt" income stream (and continue to receive a full exemption) if it meets a number of specific requirements, including:
The rules are in Section 12 of the Determination.
In addition to the above requirements, both the new income stream and the Original Income Stream:
The Determination is good for SMSF members (and is good policy) as it reflects the reality that retirees cannot be expected to maintain their SMSF forever.
However, making the rule change by way of a determination is unusual and is not conducive to clear policy-making. The Determination is difficult to find and is relatively obscure — having been issued by the Minister under sections 9A(6) and 9B(5) of the Social Security Act 1991.
You can find more information:
The documents are:
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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