You can commence a Pension in your SMSF once you have reached the Preservation Age. The preservation age varies dependent on the Member’s date of birth. A pension commencement allows you to receive periodical payments from your SMSF. A Member can choose from two types of Pensions:
There is a minimum Pension amount that you must take annually. The minimum withdrawal is based on your age at the start of the financial year. This is applicable for an Accounts Based Pension and TTR.
There is no upper limit on pension withdrawals from an Account Based Pension. However, in a Transition to Retirement Account, the maximum benefit payment is 10% of the account balance.
A benefit in commencing a Pension in your SMSF is that no tax is payable on the SMSF earnings (e.g. interest and dividends) and realised capital gains made by your SMSF.
When you convert your superannuation to a pension, there is no tax payable. The earnings from the capital that supports the pension are also tax-free.
Part of your pension payment may be tax-free (the tax-free component generally consists of undeducted or non-concessional personal contributions), and the balance will be taxable. The taxable component of your pension payments is taxed at your marginal rate plus the Medicare levy. You will also be eligible for a 15% tax offset.
Pension payments and lump sum withdrawals are tax-free. The Trustee is not required to report the pension payment to the Australian Taxation Office (i.e. you’re not required to include these payments in your personal income tax return).
To start either an Account Based Pension or Transition to Retirement Pension, simply follow the 5 easy steps below:
Ensure your Fund’s Investment Strategy reflects the Member’s retirement needs and adjust the strategy if necessary
Use Segregated Method (Bear in mind, Superannuation Warehouse does not use this method)
Use Unsegregated Method and obtain an Actuarial Certificate
This is required if:
A Transfer Balance Account Report (TBAR)is a notification to the Tax Office of the amount that the Trustee adds to their pension balance. The steps to be mindful of when lodging a TBAR report are as follows:
From 1 July 2017, a $1.6 million cap on the total amount of superannuation that can be used to commence a pension was introduced. New rules limit the amount that Members can transfer into a pension account. If a Member has a pension balance over $1.6 million or $1.7 million (after 1 July 2021), any amounts in excess of the cap will for part of the Member’s accumulation balance. For more information on the Superannuation Transfer Balance Cap, please visit our $1.7m Transfer Balance Cap page here.
For more info on how to commence a pension and make minimum benefit payments to the Members in an SMSF, please watch the ATO video below.
From 1 July 2018 the Tax Office introduced a new reporting regime for Members with pension accounts, this is referred to as TBAR.
Time frames for the lodgement of TBARs are based on your total super balance. Reporting to the Tax Office are as follows:
See our TBAR page for detailed info on reporting events and times frames.