In this edition of It depends, partner Clinton Jackson discusses what happens when you fail to meet your minimum pension payment from a superfund.
Video Transcript
Hi and welcome to this episode of It depends. Today we're going to talk about what happens when you fail to meet your minimum pension payment from a superfund, for a year. Now, the reason why we're talking about this one today is we've had lots of questions since the end of financial year from people who have actually failed to make their minimum pension payment and are looking for advice as to what to do next.
Why is it important?
Under the pension standards, a member is required to do certain things, and one of those is they are required to make a minimum pension payment for each that the pension is running. Now, what that means for each member will depend on their own circumstances. The minimum pension is calculated based on their starting balance in their pension account, the member's age, and the start date for that pension. So, each individual member, will have a different minimum pension payment. Now, why it's important is the ATO's view is if we do not make that minimum pension payment for the year, then our pension is deemed to have ceased at the start of the year that we failed to make that minimum pension. So, for example, if we didn't make our minimum pension payment in the 2025 financial year, then our pension is deemed to have stopped on 1 July 2024. Now, that has quite significant consequences, more so than it sounds, because if we don't have our pension in play for the year, then we are ineligible to claim our exempt to the current pension income exemption. What that means for members of the fund is that are we paying tax or earnings that would otherwise be tax free, at the normal accumulation rate of 15 percent.
Can my failure to pay the minimum pension be fixed?
It depends. The ATO does have some administrative powers that allows them to overlook the failure to make our minimum pension payment for a year. The main one, which is more readily available on application to the ATO, is where we fail to make a minimum pension payment, and that failure has only been because of a small underpayment. Now, the ATO's view of a small underpayment is something that's less than one twelfth of our minimum pension payment for the year. So, quite a small error in the grand scheme of things. Now, where we've made such a small error, the ATO, so long as we have fixed that error as soon as we become aware of it, will generally allow that underpayment to go through and not affect the old CPI, so long as we have fixed it up and we haven't previously had to apply for the same concession. Now, if for some reason we have a bigger failure to make a minimum payment, so we haven't paid any of the minimum pension or it's more than the one twelfth that the ATO is allowing we can still apply to ATO for relief, if the failure to meet the minimum entry requirements was due to something outside the trustee or member's control. Now, in our experience, this is a fairly high bar, and we need to put a fairly compelling case in front of the ATO for them to accept that failure to make a minimum pension payment in those circumstances. However, if that is your situation, it's definitely worth looking at because the benefit of having the ATO apply this concession is quite significant because the fund will get to continue to apply the ECPI exception for the entire year, despite our previous failure.
Is there anything else you need to do after failing to meet a minimum pension payment?
Yes. As I mentioned earlier, the ATO's view is that where we fail to meet a minimum pension payment, the pension stops at the start of the year that the failure occurred. So, in my earlier example we didn't pay our minimum pension payment in the 2025 financial year, our pension was deemed stopped on 1 July 2024. Now, what that means is that our pension is not in place for the entire 2025 financial year, but it's also not in place for any future financial years because it's stopped. Now, the ATO's recently changed their view on this particular part, but the ATO's view now is that because the pension stopped steps need to be taken to recommence that pension for later financial years. Previously, they were happy with just continuing to, I guess, recommence by paying pension late but they actually now require documents to be prepared, to evidence that restart. Now, although we don't necessarily agree with the ATO's approach, for compliance purposes and it's dealing with the fund, if we want to make sure we can apply our ECPI exemption, for tax purposes, then it is definitely good behaviour to follow the ATO's current view. So, make sure you take those steps to restart your pensions for later financial years as soon as you become aware of the previous failure to meet the minimum pension payment.
Now, that's all we have to talk about today about minimum pension payments, but if you do have any more questions on failing to meet our minimum pension payments, applying to the ATO for that concession or anything else to do with superannuation or pensions, please contact a member of our team. Thank you again for watching this episode of It depends.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.
