“Since that time, this type of pension has also had to be quarantined – it isn’t possible to combine this type of pension with a member’s other superannuation monies,” she reminded SMSF professionals.

“However, a member in receipt of a death benefit pension is permitted to commute some of their pension and take a lump sum payment provided the resulting lump sum is paid out to the member, and if the member hasn’t already taken the minimum pension for the financial year, there will be enough of a balance remaining in the pension account to do so.”

There are also no additional restrictions around how many lump sum payments the member is permitted to take from a death benefit pension, she added.

The super rules that limit a trustee to paying an interim lump sum death benefit and then a final death benefit, she said, have no application here.

“These limits only apply to the initial compulsory cashing of death benefits where the trustee resolves to pay lump sum benefits to beneficiaries and the monies leave the superannuation system,” she explained.

“As such, there is no limit on the number of times a member is permitted to commute part of their death benefit pension and take a lump sum payment.”

Ms Dawson said this is in recognition of the fact that pension payments, to the extent they consist of taxable component, will be assessable income taxed at marginal rates, less a 15 per cent tax offset. 

“Whereas a lump sum payment will be non assessable non exempt income provided the beneficiary was a dependent for tax purposes.”

SMSF professionals who are assisting clients with documenting these benefits, she said, need to ensure that a decision by the member to draw the benefit as a lump sum benefit and not a pension payment is made in writing prior to the payment being made.

She also warned SMSF professionals to ensure that any software they are using accounts for the lump sum payment correctly.

“For example, the trustee will not need to withhold tax or issue a payment summary for the lump sum payment from a death benefit pension if the beneficiary was a dependent for tax purposes,” she explained.

“You will also need to ensure you attend to TBAR reporting in respect of the pension commutation.”