In this guide
There are certain situations where a member of a self-managed super fund (SMSF) may want to rollover their member benefits to another super fund.
This usually occurs where the member wants to leave the existing SMSF or where the SMSF is being wound up and all member benefits need to be moved to another fund.
The process itself would be relatively simple where member benefits are held in the accumulation phase of super as the balances would simply be 'rolled over' from the SMSF to the new fund chosen by the member. The SMSF trustees would carry out the rollover process and meet the reporting requirements using the SuperStream system.
Read more about SMSFs and SuperStream.
Learn how to wind up your SMSF.
The process is not so simple where a member is receiving an existing pension from their SMSF. In this case, we need to look at the required process around rolling over these pension benefits and cover the frequently asked question: Can a pension be rolled over directly to a new super fund or does the pension need to be ceased (commuted) first and then rolled over to the new fund from the accumulation phase?
Important
Before SMSF trustees take any action on member rollovers, they first need to review the following:
- The specific rules of the SMSF, as set out in the fund’s trust deed:
- What does the deed allow regarding rollovers?
- What does the deed require for rollovers to take place?
- Is there a specific process set out in the trust deed that needs to be followed?
- Any ‘asset specific’ issue or requirement?
- For instance, if the SMSF has an existing borrowing arrangement, will the rollover effect that arrangement? Do the SMSF trustees need to inform the lender that there is a member leaving the fund? This would usually be contained in the relevant loan terms and covenants.
- The specific rules of the receiving fund:
- What rules need to be followed for rollovers to be received into the fund?
- Does the new fund have any fund specific rule or requirement on accepting rollovers; does it specifically allow pension rollovers?
What steps need to be taken for a pension account to be established in the new fund?
Rolling over to an existing pension account
Where you have multiple existing pensions in more than one super fund, you can’t roll over any of those pensions into another existing pension, whether it be in the same or different super fund.
Both the pension standards set out by the SMSF regulator and the Superannuation Industry (Supervision) Regulations 1994, include a restriction on increasing the capital supporting an existing pension using contributions or rollover amounts.
Moving a pension from one super fund to another
A more common scenario would be where a fund member wants to roll over an existing pension from one fund into another super fund.
This is where things start to get interesting.
It would be extremely helpful if there were specific superannuation rules that cover this issue concisely but, unfortunately, I am not aware of any.
The ATO provides information on the transfer balance account reporting requirements relevant to a 'Rollover of account-based pensions from an SMSF to an APRA fund'. The information includes the following example:
“Saxon started a retirement phase income stream valued at $1.0 million on 1 July 2018 in the Saxon SMSF. The Saxon SMSF lodged a TBAR and reported this to us on 28 October 2018.
In August 2022 Saxon decides to commute his pension, roll it over to APRA Fund BBB and wind up the Saxon SMSF. At the time Saxon commutes his income stream it is worth $950,000 and he does not have an accumulation phase interest in the SMSF.
APRA Fund BBB commences Saxon’s new pension in August 2022. When the rollover is made, Saxon's SMSF provides Fund BBB with an RBS message via SuperStream reporting income tax and contributions information …”
This suggests that an existing pension may need to be commuted before being rolled over to a new fund. This would seem to make sense when you think about the transfer balance account outcomes.
There were also comments made by the ATO within documentation relating to a 2013 taxation ruling, including:
“The Ruling provides principles which can be used to determine if a commutation has occurred. Only a lump sum amount can be rolled over. The Ruling does not look, however, at what happens after the commutation occurs, for instance whether it is paid to the member or rolled over to either a new fund or to a new account in the existing fund.
This question therefore goes into a level of detail not contemplated by the Ruling and is out of scope. Further, advice can however be sought from the ATO in relation to particular circumstances if required.”
This wording suggests that a rollover needs to be carried out as a lump sum and not as an income stream or pension.
But is this actually the case?
What if the specific rules of a super fund allowed member benefits held in a pension in another fund to be rolled into their fund as an existing pension? Taking this one step further, what if specific rules of the existing fund paying the pension also allowed pensions to be rolled out to a new fund. Essentially, both funds allowing this to occur. What is stopping this from taking place?
Cue the crickets…
