Disablement Child Pensions

In general, Child Pensions can only be commenced if the child is under age 18 (at the time of death of the member) or has attained age 18 (but not 25) and be financially dependent on the member at the date of death.  Also, Child Pensions must be commuted at age 25 (if they have not previously been commuted or terminated by exhaustion).

Disablement Child Pensions have different commencement and termination requirements.  If the child satisfies the relevant disablement requirement, then the pension can be commenced whether or not the child has attained age 18.  Further, if the child satisfies the relevant disablement requirement at age 25, then the compulsory commutation requirement does not apply and the pension can continue to be paid.

The relevant disablement requirement is that the child has a disability of the kind described in s8(1) of the Disability Services Act 1986.  The ATO has confirmed in the SMSF Determination that the Trustee must reconsider whether the child satisfies the disablement requirement on attaining age 25.  If the requirement is satisfied, the pension can (but need not) continue to be paid after the child has attained age 25.  If the requirement is not satisfied, then the pension must be commuted and the resulting lump sum paid to the child.

There are two interesting issues in relation to Disablement Child Pensions: one has been resolved and the other remains unresolved.  

The first and resolved issue is that a Child Pension can be commenced as a non-disablement pension.  However, if the child at age 25 satisfies the relevant disablement requirement, the pension need not then be commuted but can continue past age 25.  The relevant point is that whether commutation at age 25 is mandatory depends entirely upon the disablement status of the child at age 25 and the disablement status of the child at the date of death of the deceased member is not relevant.

The second and unresolved issue is whether a Child Pension can be paid to a child who has satisfied the relevant disablement requirement at the time of death of the member but was then aged 26 or more.  If the two relevant SIS Regulations are read together, then it seems to be implicitly required that the child must not have attained age 25 at the time of death of the deceased member.  Consequently, it seems the answer to the second issue is that Disablement Child Pensions can only be commenced if the child has not attained age 25 at the date of death of the member.

Reference SMSFD 2013/1.  SIS Regulations are 6.21(2A) and 6.21(2B).