Contrary to suggestions that reportable events under the new TBAR regime will be minimal, one major SMSF software provider predicts that the level of reporting required will be “significantly higher than expected”.
Analysis undertaken by Class in the June 2017 SMSF Benchmark report has estimated that reportable events could rise by 340 per cent, driven by a surge in pension commutations.
“The major reason for the dramatic increase in reportable events is that SMSF pensioners who draw more than their required minimum will likely perform additional commutations to maintain room under the $1.6 million cap for extra contributions,” the report stated.
The data analysed by Class indicates that at least 39 per cent of pensioners drew down at least $5,000 more than the minimum on their pensions during the 2016 financial year.
“The average SMSF pensioner withdraws about $74,000 annually on their pension over a series of 12 transactions and overdraws $24,000 above their minimum,” the report revealed.
“If this pattern holds, there will likely be four withdrawals towards the end of the financial year beyond the minimum which would be commuted and reported to the ATO under the TBAR regime.”
The analysis also indicated that pension establishments will also account for a significant part of the reporting requirements because many pensioners have more than one pension, with the average number currently at 1.9. It also showed that 21 per cent of pensioners have three or more pensions.
Speaking in a webinar, Class chief executive Kevin Bungard said over 40 per cent of members have more than one pension, and among those who only have one pension, often members will recycle those pensions as a way of sweeping up contributions.
“When you look at the commutation data, there’s a strong possibility that you’ve got a number of members who are commuting the pension, sweeping up some additional contributions that have come in during the year and then commencing a new pension,” he explained.
“So even when people have one pension it may not be the same pension, year in, year out.”
In the report, Verante director Liam Shorte said that these numbers may be “further boosted by account-based pension establishments driven by a movement of funds out of TRIS and additional commutations by two-member SMSFs seeking to keep below the $1.6 million transfer balance cap by evening up their pension balances”.
The data from Class shows that 29 per cent of the 50,900 two-member SMSFs where at least one member has a balance over $1.6 million.
“There was an initial view that [the new reporting] was not going to be that big of a deal. [The view was] that most people are just going to start one pension and then until someone drops off the perch that’ll be it. That would mean only two reportable events over a 35 year period. [However], that’s clearly not the full story,” said Mr Bungard.