The originating super fund must tell the new super fund the “taxable” and “tax-free” components. Any untaxed element in the rolled-over value will be taxed in the receiving super fund. These untaxed elements typically arise from public sector and government employee pension schemes.
In most cases, rolling over a pension to another super fund will involve the new super fund issuing a financial product.
This means that the new super fund will need to receive an eligible application form from the new member and must also issue a Product Disclosure Statement.
A nine-step process is used to implement this transaction in the originating super fund:
1. Member requests rollover or notifies that they have the right under the terms of their superannuation pension;
2. The trustee confirms entitlement to rollover the pension;
3. The trustee issues a Pre-payment Statement – a specific ATO issued document
4. The Pre-payment Statement is completed and signed by the super fund member and returned to the trustee;
5. If required, the trustee works out what the pro-rata minimum pension payment should be just before the amount is rolled over;
6. The trustee sells/transfers assets to effect the rollover;
7. The trustee adjusts the original pension’s account balance; If required, the trustee issues relevant exit information to the member;
8. For SMSFs, if the member has left, then this will trigger a change in trustees.
9. In most cases the member must resign as a trustee and the ATO must be notified of this change in trustees. For individual trustees this would trigger changes in asset ownership.
REFRESHING A PENSION
Refreshing means rolling back one or more pensions and then commencing a new pension. Before the new pension starts the old pension money might also be merged with non-pension or accumulation assets in the super fund for the same member.
There are three reasons to contemplate these transactions: injecting new capital into a pension; reducing the tax applying to the accumulation assets; and avoiding the additional costs of running two or more pensions.
Most pensions commenced in the past ten years can be refreshed, including TtR pensions. It’s important to make sure the rules of a super fund and the pension itself allow it to be stopped.
The amount transferred back to the accumulation phase will not be a contribution for super law purposes. This means that the super law contribution rules (especially relevant for those aged at least 65) do not need to be satisfied. Its preservation status however will remain unchanged. This means any preserved benefit used to pay a Transition to Retirement pension will remain a preserved benefit.
It’s important to understand how the tax-free component of the new pension will be calculated.
If the member doesn’t have an accumulation interest in the super fund then it would appear that the tax-free component of the new pension will be the original tax-free component of each rolled-back pension.
If the member does have an accumulation interest in the super fund then the rolled-back pension account balance and the accumulation interest will form a single accumulation interest in the fund. The tax-free percentage of each income payment will therefore be based on the tax-free component of this single accumulation interest.
If a super fund has used asset segregation, then the super fund’s financial accounts will need to accurately show the movement of assets between the pension and non-pension segments. A large number of assets can make this process quite messy.
The new pension will involve the super fund issuing a financial product. This means that the super fund will need to receive an eligible application form from the new member and in most cases must also issue a Product Disclosure Statement.
