Question 2
In Manual 2021, I cannot find an explanation of how the pension amount should be calculated. I would also like to know what penalties there are if the pension is not paid on time?
I had a problem paying the 2021 pension before 30 June, and I wondered whether I could appeal to someone for leniency. It could have been a Covid-19 staff problem.
My SMSF asked XXX Share Investments to sell its shares in ZZZ on 17 May. They have still not done that. 3 apologies have been received, but no cash. So, no pension could be paid.
Then I transferred the shares off-market, but now my accountant says I have to put the money back. He said the pension had to be paid in cash. The share price has crashed. I received a welcome letter from ZZZ, but their website shows that the super fund owns the shares. Maybe everyone is short-staffed because of the pandemic?
Answer
It was the task of your Accountant or SMSF administrator to advise you in writing on pension options well before 30.6.2021.
Usually, a minimum and maximum amount apply, and the fund member receives a pension prior to 30 June.
As you would be aware, income on assets in pension mode is tax-exempt, providing the pension has been properly paid for the year.
Due to Covid-19, for 30.6.2020 – 30.6.2022 inclusive, the rate on minimum pension drawdowns have been reduced by 50%, meaning a pension as little as 2% on the level of relevant SMSF assets could be paid.
We don’t have the full circumstances, and you should have an open and frank discussion with your accountant to resolve this.
There are some wider issues at play here – and some real care and attention is called for:
- If a SMSF fails to meet the minimum pension requirements in an income year. The super income stream will be taken to have ceased at the start of that income year for income tax purposes.
- From the start of the income year, the account is no longer supporting a super income stream. Any payments made during the year will be lump sums for both income tax and SIS Regulations purposes.
- If you comply with the minimum pension rules in this current year, this results in the payment of a new pension. The trustee will need to revalue assets at market value and recalculate the minimum pension required at the start of the new pension.