Pension Overpayments

This issue is only relevant to transition to retirement income streams (“TRIS”), as such pensions have both a minimum pension limit and also a maximum pension limit, which is equal to 10% of the account balance.  Ordinary account-based pension are not subject to the 10% maximum pension limit.

The view expressed in both the Draft Ruling and also the final Ruling, is that a breach of the 10% maximum pension limit results in the pension failing to satisfy the relevant pension standards.  Consequently, the super interest supporting the pension will not be on the tax exempt side of the fund for the financial year in which the overpayment occurred.

The ATO has not, as it has done with pension underpayments, provided any administrative concessions in this situation.  

The end result is that the ATO will consider the fund to be not paying a pension (as specified by the SIS regulations) and therefore, the fund will not be entitled to any tax exemption on the earnings related to that pension and the payments in the hands of the member will be taxed as a series of discrete superannuation lump sums paid in breach of the payment standards.