The short answer is YES.

But what does the ATO say?

The key ruling on starting and commuting pensions is Taxation Ruling TR 2013/5.

However, the ruling does not consider this question. That being said, the compendium that is associated with the draft version of that ruling reveals interesting insights.

Namely, it reveals that the following question was put to the Commissioner: "Does a commutation occur when an amount is rolled over? The ruling does not consider the effect of a member requesting a rollover payment, whether to a new fund or back to accumulation phase in their current fund.

The ruling should clarify whether a commutation occurs, and whether the superannuation income stream ceases. It could also be clarified that a superannuation lump sum arises in these circumstances.

This is important for the application of the proportioning rule to the notional lump sum, and to any subsequent pension which commences."

The response from the Commissioner was as follows: "The ruling provides principles which can be used to determine if a commutation has occurred. Only a lump sum amount can be rolled over [emphasis added].

The ruling does not look, however, at what happens after the commutation occurs - for instance, whether it is paid to the member or rolled over to either a new fund or to a new account in the existing fund. This question therefore goes into a level of detail not contemplated by the ruling and is out of scope. Further advice can however be sought from the ATO in relation to particular circumstances if required."

The Commissioner has stated, albeit in a non-binding fashion, that only a lump sum amount can be rolled over.

Therefore, the short answer is YES - If rolling a pension from one fund to another, the pension must first be commuted.

The above is an extract from an article from Bryce Figot of DBA Lawyers published in the April 2015 print version of Professional Planner Magazine.