Moving pensions from one fund to another

Sometimes a person with a balance in more than one superannuation fund may wish to consolidate their superannuation savings by moving all of it to just one fund. This would occur if the transfer was made between a retail fund, industry fund or small superannuation fund, such as an SMSF.

Transferring lump sums
The first thing to consider when transferring a benefit from one fund to another, is to determine whether the fund comes from the accumulation phase or from pension phase. If the transfer is from accumulation phase, it is a simple matter of the member writing to the trustees of the fund. Once the member has provided all the identity and privacy information, the trustee will arrange the transfer of the benefit to the nominated fund.

Payment to the receiving fund can occur automatically via the SuperStream system or by another method, such as a cheque or bank transfer, if it is to an SMSF. The amount will be credited to the fund’s bank accounts and will be accompanied by a rollover statement (RBS), which will set out the preservation status and taxable/tax free components of the benefit transferred.

Transferring pensions
When it comes to pensions the process is similar, however, the superannuation legislation requires the pension to be commuted (converted) to a lump sum so the transfer can take place. It is considered that the transfer of a pension from one fund to another results in one pension ceasing in the transferring fund, and another being created in the receiving fund.

Just like the rollover of a lump sum, the transferring fund prepares an RBS rollover statement which includes the preserved components, taxable and tax-free components. When the amount is received by the new fund it is credited to the member’s accumulation account and can be used to commence a new pension. Before commencing the new pension, the fund calculates the taxable and tax-free percentages, which may differ from those on the RBS if the member has amounts already credited to their accumulation account in the fund.

When transferring benefits from an SMSF, it is necessary to value the fund to work out the amounts that will be transferred. This may require preparation of interim accounts so an accurate valuation can be made. The valuation of balances from larger funds is usually made on a daily basis in view of the number of members benefits that are being paid by the fund.

Example

A person is a member of an industry fund and also an SMSF. When they retired at 60 years of age, account-based pensions commenced from both funds. The pension in the industry fund commenced with $400,000 and they used $600,000 to commence an account-based pension in the SMSF.

Due to a decision to change the investment strategy of the SMSF, it was decided to commute the pension in the industry fund and roll it over to the SMSF. The value of the pension rolled over from the industry fund was $350,000, which will be combined with the pension balance in the SMSF which is now $500,000.

If the person wishes to commence a new pension from the SMSF, it will be necessary to commute the pension being paid from the SMSF and transfer it to accumulation account before adding the amount rolled over to it. The balance is in the accumulation account will now be $850,000 ($500,000 plus $350,000) and will be used to commence the new pension.

The taxable and tax-free components of these pensions may change if there were different proportions of the original pensions that were commuted. However, there will be no change in the preservation components as the person has retired and meets a full condition of release. Also, after the new pension has commenced, there will be no change in the person’s Transfer Balance Cap balance. It will remain at $1 million after the debits for commutation of the two pensions and credit to the balance when the new pension commences.

Requirement to use SuperStream
To make the transfer process a little easier, from 1 October 2021 it will be essential for SMSFs to be part of the SuperStream system when benefits are being rolled over to and from other funds. However, it is possible, but not compulsory for SMSFs to register for SuperStream from 31 March 2021 if they wish. The most common time to rollover benefits between funds is when the fund is being established or wound up, and it may also occur when benefits are being transferred from other funds to combine benefits or where a death benefit is rolled to or from an SMSF. Information about SuperStream is available from the ATO’s website at: SuperStream rollovers and release authorities for SMSFs | Australian Taxation Office (ato.gov.au)¹.

Rolling over?

The advantages of consolidating superannuation balances are something to think about as it puts all the eggs in one basket. However, before rolling over, individuals should consider the benefits they are leaving behind, and whether there are good and valid reasons to transfer benefits to another fund. For many, the advantages of rolling over can mean simpler and more efficient fund administration.

¹ https://www.ato.gov.au/Super/Self-managed-super-funds/Contributions-and-rollovers/SuperStream-rollovers-and-release-authorities-for-SMSFs/