Q I would like to close down our SMSF and transfer the funds to a professionally managed fund. However, one of the income streams from our SMSF is a Term Allocated Pension.
I have made some enquiries about a possible transfer of funds but it seems that most if not all product providers no longer cater for such an income stream. Could you please advise whether you are aware of any funds that would take our funds and could maintain the current benefits we get from this type of market linked pension.
A A Term Allocated Pension, is a market linked pension that was made available in the Australian market from 20 September 2004 until 20 September 2007. Being a market linked investment, the capital invested is subject to market fluctuations. Unlike Annuities and being market linked, there is no guarantee your pension payments would continue throughout your lifetime.
Whilst investors had the choice of where to invest the funds, they were restricted on how much income they could draw. The income is limited to the value of the Term Allocated Pension, divided by a life expectancy factor for the pension owner. The pension owner is restricted to varying this factor applicable between the factor if they were 5 years younger than their age.
The attraction of Term Allocated Pensions was largely driven by the favourable treatment they received from Centrelink in calculating Age Pension Benefits and to manage Reasonable Benefit Limits (RBL’s). Term Allocated Pensions were “Complying Income Streams” which means that 50% of the value of the assets of the Term Allocated Pension was exempt from Centrelink Assets Test treatment. Hence they were an attractive option for those looking to maximise entitlements to the Age Pension. Previously “Complying Income Streams” were limited to Annuities which provided no flexibility to investors on how they invested their funds.
The window of opportunity for Centrelink Assets test exemption closed 20 September 2007. Funds established prior to this date retained eligibility for the benefit.
A Term Allocated Pension can be rolled over to another Complying income Stream; Term Allocated Pension, Lifetime Annuity or Term Annuity. It cannot be cashed in.
The problem you face is that the availability of market linked pensions is extremely limited. Most providers have closed their funds to new money. Having said that, there are a few providers around that will accept Term Allocated Pension commutations (rollovers) from qualifying funds. An alternative may be a Complying Annuity.
As with any other investment, you would need to assess the quality of the underlying manager and the costs of the product. A professional Financial Planner will be able to source available alternatives and assess the relative merits of available options based on your circumstances.
Your issue will become more prevalent to aging Trustees as the compliance and management costs of an SMSF becomes uneconomic and the value of funds diminishes.
It is fair to say that establishing a SMSF is a lot easier than closing one down! The ATO website has an excellent guide to “Winding up a Self Managed Super Fund” so you are aware of the steps you need to take. Couple this with sourcing alternative options and commuting a Complying income stream, you need expert professional advice.