Back-dating pension commencement – is this permitted?

It is not possible to backdate the commencement of a pension. However, if the trustee and the member have informally agreed that a pension would commence from a particular date in a financial year (typically, 1 July for obvious reasons) and, in fact, pension payments are made in that financial year and the aggregate of the pension payments are sufficient to satisfy the minimum pension drawdown requirement for that financial year (pro-rata’d if the pension commenced after 1 July) – then the pension will have commenced on the first day of the period used to calculate the minimum drawdown requirement as per the informal agreement between the trustee and the bmember.

Where a pension has been informally commenced, pension documents can be prepared and issued which confirm the prior commencement of the pension. As these pension documents confirm the previous agreement, they need to be dated with the date of issue of the documents. Confirmatory pension documents are issued primarily due to the delay in obtaining precise figures for a 1 July commencement date. In this situation, a best guess as to the estimated pension balance as at 1 July could be used to calculate the minimum drawdown requirement for the financial year. Once audited figures are available, then correct minimum drawdown requirement can be determined and any appropriate adjustment to the document can then made.

The statutory requirement for pension payments are (1) at least one payment per financial year and (2) there must be not more than a 12 month gap between pension payments and (3) sufficient pension payments being made in a financial year to satisfy the minimum payment requirement. The trustee and the member can decide whether the period frequency of the payments (monthly, fortnightly, quarterly, 6 monthly or annually) and whether the payment in respect of each period is in advance, in arrears, or at some other point within the period.

So it is possible for a member and the trustee to agree on or before 1 July that a pension will commence on 1 July and have the confirmatory pension documents (with the commencement balance of the pension described as the “the member’s interest in the fund as at 1 July” or a “portion of the member’s interest in the fund as at 1 July”, and once audited figures for the financial year are available, in say, the following May pay the first pension payment in the following June (but before the end of the financial year) In this scenario the pension has been issued as there was an agreement between the member and trustee, the commencement balance of the pension was adequately specified (albeit as a determinable amount rather than as dollar amount), the June 2025 pension payment will be determined by reference to the audited figures and the June 2025 payment will equal or exceed the minimum pension drawdown for the financial year.

Considering back-dating your pension commencement? For guidance on whether this is permitted and how it may affect your retirement planning, give Humble Goode Financial a call on 08 7477 8252 or email planning@hgfp.com.au.

Source: https://www.supercentral.com.au/resource-centre/newsletters/supercentral-news/back-dating- pension-commencement-is-this-permitted/

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