Commutations of Account-Based Pensions under the New Release Condition and the Minimum Pension Amount

Under the rules which apply from 1 July 2007, these pensions must pay a minimum payment in each financial year.  The minimum payment is calculated as a percentage of the pension account balance.  For members aged under 65 the minimum percentage is 4%.

If a pensioner member satisfies the Terminal Medical Release Condition and wishes to commute their pension to a lump sum, the fund will have to ensure that it has already paid the pro rated amount of the minimum pension payment before the fund can pay the commutation lump sum.

Example
Bill, aged 56, has commenced a transition to retirement pension on 1 July 2007 with an account-balance of $300,000 and suffers a Terminal Medical Condition on 31 March 2008 and wishes to commute the pension.

Minimum pension limit for Bill for 2007/2008 is $12,000 (ie 4% of $300,000). 

The Trustee must ensure that the pro-rated amount of $12,000 has been paid before the pension can be commuted.  As 210 days have elapsed before the commutation, the Trustee must ensure that Bill has been paid at $6,885 in pension payments (210/366 days of $12,000).