What’s the Difference Between a AP to a ABP

Prior to 1.7.07 the two common forms of pensions were Allocated Pensions (“AP’s”) and Complying pensions. On 1.7.07 new Superannuation reforms were introduced to increase the incentives for retirement savings and withdrawals of super funds in the form of pensions. These new pensions are called Account Based Pensions  (“ABP’s”)

The only differences between the two are the minimum & maximum payments that are required to be paid from the fund on an annual basis. Basically a ABP is the preferred as it allows a smaller minimum payment(s) per annum compared to the AP. Also GThe ABP has NO maximum payment restriction, whereas the AP has a limit on the maximum contribution. To see these differences by comparing the tables by <clicking here for ABP>and<here for the ATO-Link AP>.

How to Convert a AP to a ABP

Conversion is surprisingly easy. There is no need to commute a AP to a ABP, simply the payment needs to be paid in accordance with the rules of a ABP.

However the law does allow the AP to be commuted (rolled back to accumulation) if preferred and then a new ABP pension created. An example of why you would commute is if you could increase the tax free portion of the pension, ie the AP had for example a pre83 component and in order for it to be included in the tax free portion the AP needs to be commuted.

However we suggest that documentation to support the choice should be made and it is recommended that the following be carried out:

• Obtain review the deed
• Trustee send the member a letter providing info and requesting certain info to assist with the conversion, eg:

  Advice
  

  1. Advising of components of the AP, such as pre Jul 83 components
  2. Features of an ABP, in particular differences between AP and ABP, Minimum pension amounts

  Requesting Info
  

  1. Date ABP is to start

• Obtain a written request from the member to convert the AP to a ABP
• Pass a trustee resolution to effect the conversion, and relevant details
• Issue a PDS