by Abra Chowdhury
According to SIS regulations, if a member starts an account-based pension after 1 July 2007, a minimum amount must be paid each year. Minimum pension drawdown percentages are based on the member’s age. Recently, the Government temporarily reduced the minimum pension requirement by 50% for FY2020 and FY2021 to help manage the effects of COVID-19.
If a member fails to withdraw the minimum pension the fund will be unable to claim ECPI (Exempt Current Pension Income) in that year, and the income stream is deemed to have ceased from the beginning of the year. This will also have TBAR consequences. If the income stream was a TRIS it may create early release issues.
However, the Commissioner of taxation has discretion to allow the income stream to continue under certain conditions. As soon as the member is aware the minimum pension requirement has not been met, a member can apply to the Commissioner of Taxation explaining the circumstances and providing evidence is available. If accepted, the commissioner will require the underpayment to be made up and allow the fund to claim ECPI.
Generally the Commissioner will only provide their discretion where there has been an honest mistake resulting in a small underpayment or there have been extenuating circumstances outside the control of the trustee.
If you have a client who failed to drawdown the minimum pension, speak with us to run the scenario and see if we can assist.