Can SMSFs issue pooled superannuation products?

The short answer is no but there is a bit of a story.  The reason SMSFs cannot issue these products is that the lifetime products are defined benefit products and SMSFs have not been permitted to issue new defined benefit products since 11 May 2004.  However, there is an exception.

The exception arises because SMSFs can issue a defined benefit product if the product is entirely financed by way of a life insurance contract (for example a lifetime annuity).  Consequently an SMSF could acquire a lifetime income product in respect of a member which is an annuity provided the SMSF issues a lifetime income product to the member which materially mirrors the terms of the acquired annuity. The annuity could be an immediate annuity (no deferral period) or a deferred annuity (an annuity which has deferral period).

Consequently an SMSF member could acquire two income products – an allocated pension (which provides an immediate income source) and a deferred superannuation income stream (which is entirely supported by a deferred annuity).

Example

Bertie, aged 65, has $800,000 super balance in his SMSF.  His co- trustee, Jeeves, suggests that Bertie have a $600,000 allocated pension and that the SMSF buys a $200,000 20 year deferred annuity for Bertie.  In this way, Bertie will have an immediate income source from the allocated pension.  Additionally, Bertie will have a further lifetime income stream which will commence when Bertie attains age 85.

However for this to occur the governing rules of the SMSF must permit the trustee to issue a deferred superannuation income stream product and also must permit the trustee to acquire a deferred superannuation annuity for a member.  

Naturally, Jeeves notes that the SUPERCentral Governing Rules are going to be amended to precisely address both issues in the next update – which is likely to be very soon – as Bertie is keen to get his superannuation income stream affairs in order.