Cavendish Super warning on underpaying pension standards

Cavendish Super's head of technical services Tim Miller has warned self-managed super fund trustees to ensure they meet the pension standards on time to avoid unwinding a year's worth of tax breaks.

Miller said the Australian Taxation Office had ruled that a fund that did not ensure it met the pension standards in making sure the minimum amount is paid on time would not have a pension for that year.

"In this situation, you affectively have rolled back to accumulation, so that concept of the separate superannuation interest … disappears under this minimum pension standards concept," he said.

According to Miller, if the standards are not met, the ruling said commutation occurred at the beginning of the financial year.

If a self-managed super fund meets the minimum payment the following year, pension commences at that time, he said.

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"So all that work that we have done segregating benefits, tax-free, taxable will be lost and we will have a new pension in place for the members of the super fund, assuming the payments are made the following year," Miller said.

But he said members would only find out at the end of the year, and would then need to know about the new calculations relating to the new pension.

Funds that overpaid the pension standards would also create issues, particularly overpaying transition to retirement, Miller said. 

The ruling relates to account-based pensions.