While the ATO confirmed that if you fail to pay the minimum, then you have breached the compulsory cashing requirements under regulation 6.21, they have also made it clear that a trustee can commence a new pension, and that would still be considered to be a death benefit pension in that surviving spouse’s name.

SuperConcepts general manager of technical services and education Peter Burgess said while the clarification provided by the ATO was certainly welcomed, it has also created some fresh questions in regard to the establishment of the new pension.

“The ATO article says to prevent further possible contraventions, one option would be to immediately cash the death benefit in the form of a new retirement phase income stream,” Mr Burgess said.

“However, it’s not clear in the article whether this would require the tax components of the original death benefit pension to be recalculated at that time.”

Mr Burgess said the term “new retirement phase income stream” seems to imply that it would, which then raises another question about whether or not the new pension loses its status as a death benefit pension.

“If it does, then any future payments from this pension would not be entitled to the concessional tax treatment afforded to death benefit pensions,” he explained.

“We might be reading too much into this, but the option of rolling over the interest to another fund for immediate cashing makes specific reference to the term ‘death benefit income stream’ while the option of commencing a new pension in the fund just refers to the term ‘retirement phase income stream’.”

SMSF Alliance principal David Busoli also agreed that the guidance misses a couple of important items.

“[For example], pension minimum requirements in the year of death are only applied to reversionary pensions. Non-reversionary pensions are exempt from the minimum pension requirements,” Mr Busoli clarified.

“Also, in the year of death, the reversionary pension minimum does not alter. The minimum is recalculated based on the reversionary beneficiary’s age in the next year.”

Although the ATO’s article does not contradict this, Mr Busoli said its failure to mention it could be misleading.

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