Retirees moving to Self Managed Superannuation funds

Lisa Galbraith, General Manager

I read with interest the article in the Financial Review this morning about retirees moving to Self Managed Superannuation Funds (SMSF).

The ATO SMSF statistics suggest that a growing number of retirees are moving their retirement funds into an SMSF. Perhaps with retirement they have more time to focus on investment activities and they wish to control their funds more personally in their retirement.

Cleardocs also sees this trend. We have seen strong growth in the number of people setting up SMSFs and we are also seeing the transition of users from accumulation to pension phase – either through a normal pension structure or with a transition to retirement pension. We are also seeing more users setting up and updating their death benefit arrangements (either nomination forms or the newer, “non-lapsing” death benefit agreements).

Pension documents or minutes?

Just as trustees update their SMSF as the law changes, members should also consider how to document pension arrangements. Although documenting a pension arrangement with a set of minutes continues to occur. At Cleardocs, we are seeing more and more trustees choosing to use our more formal pension document package. Superannuation law requires trustees to document their pension arrangements. The clearer and more complete the documents, the less likely disputes will arise. The main issue with using minutes to document a pension is that they are usually pretty superficial and so are incomplete.

Using a pension package is seen by our lawyers, Maddocks, as best practise.

Our pension document package provides:

Evidence – the ATO and funds auditors have the documents to review

Compliance – To qualify for concessional tax treatment, a pension must meet the definition of pension under the superannuation law. The SMSF trustees must make certain information and documents (which are usually set out in a PDS) available to the member. Accordingly, pension documents that include a PDS help the trustees to comply with this obligation.

Easy Administration – the documents are written in plain language and trustees understand how to administer the pension. The inclusion of a PDS helps with the understanding the terms and the nature of the pension arrangement.

No Disputes – Pension documents that contain clear provisions about how the pension is to be administered after the death of the member will reduce the likelihood that claims will be made by the member's dependants after the member dies. A common pension administration issue that is avoided by good documents is whether or not the pension will revert to one or more dependents — and if so, which ones.

Cleardocs over the coming months will be releasing increased options and flexibility of trustees who are starting to consider life beyond the accumulation phase.