In the world of Self-Managed Super Funds (SMSFs), proper documentation is a vital part of compliance and sound financial management. One key area that requires careful attention is pension commencement documentation, highlighted by the popularity of electronic signature software.
The Rules
According to TR 2013/5, there are clear guidelines regarding when a pension can commence. Specifically, it states that: “The commencement day cannot precede the date of the member’s request or application. Further, the commencement day cannot occur prior to the day established as the commencement day in the terms and conditions agreed between the member and the trustee governing the superannuation income stream.”
What does this mean? Simply put, the date on which a pension commences must align with documented request and agreement with the trustee.
The Traditional Approach
Traditionally, accountants have handled the pension commencement paperwork when preparing annual accounts. While this has been standard practice, it opens the door to unintended consequences. There have been instances where clients might have been tempted to “game the system” by backdating pension commencement to achieve a more favourable outcome.
The Rise of Electronic Signatures
With the increasing use of electronic signatures, it’s become harder to manipulate dates without detection. You can’t hide the date of a signature, which adds an extra layer of accountability. However, it also highlights that traditional practices are still in play, with some accountants still relying on outdated methods.
A Case in Point
Consider a recent example we encountered: A large fund commenced a pension during the year. However, before the paperwork was signed, the member sadly passed away. Since the commencement wasn’t documented formally and only a verbal agreement was in place, it could not be proven that the pension had actually commenced. This oversight led to significant tax implications for the fund—an expensive lesson learned.
The Call to Action for Accountants
Given these scenarios, it’s imperative for accountants to adopt best practices in documenting all pension commencements. Proper documentation is not just a compliance requirement; it’s crucial for avoiding potential issues down the road.
Conclusion
In summary, the importance of proper pension commencement documentation cannot be overstated. It protects both the fund and its members from potential pitfalls and ensures compliance with regulatory requirements.
At SIS Logic, we’re committed to helping you navigate the SMSF landscape with integrity, efficiency, and quality. If you have questions about pension documentation or SMSF audits, feel free to reach out.
