Sent: 18-11-2008 11:21:01
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Asset Transfers & Pension Income Payments
In my DIY Super column in The Australian last week I mentioned the long held view that superannuation pensions can only be paid with money (or "near money" as the saying goes for cheques and direct debit transactions).
In short in specie transfers of assets - even those valued at market value - as a proxy for actual income payments is not permitted.
At a couple of presentations that I gave last week I also had cause to mention the 'no pension income payments via asset transfers' rule.
Whenever this rule is mentioned, it never ceases to amaze me how many people don't know about it.
This rule is actually part of the superannuation preservation standards and I guess paying income payments in this way is breach of a super law operating standard. Any auditor of a fund who found this breach would have to consider whether or not to report it to the super fund's regulator (APRA or the ATO) as a breach.
The materiality of the breach is going to very much depend on the circumstances of the breach.
One practical aspect of this rule which has to be considered is overall asset allocation. One of the reasons I mentioned this pension payment rule is the issue of redemption bans on some unlisted managed funds.
Some small super funds had an asset which is not easily divisible but which dominates the fund - that is, it is the major asset in the fund. The asset might be used by the members in their business. Or the trustee might simply be reluctant to sell the asset for whatever reason.
But it is very foolish to generalize about small super funds and assume this pension paying problem is common.
According to some media reports the ATO have estimated that up to 10% of all small funds have compliance problems. This means 40,000 funds. This sounds like a lot.
Just last week the Senator Sherry said that, "The SMSF segment is a robust, important and mostly healthy area of the market." But also went onto say, "The Government has conducted a thorough review of this sector and is currently analysing the pathway forward. And of course there (sic) a set of issues for the retail sector."
I suppose we are just about to find what he means by this.
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