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:

  • Account Based Pension: If you are over the age of 65 or have retired and reached Preservation Age you can commence an Account Based Pension. This gives you unlimited access to your Superannuation.
  • Transition to Retirement (TTR): A TTR can be commenced if a Member has reached preservation age but not retired.

Minimum and maximum 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.

Benefit of commencing a Pension

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.

Tax rate in the pension phase

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.

Members under their preservation age

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.

Members over their preservation age

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).

Starting an SMSF Pension

To start either an Account Based Pension or Transition to Retirement Pension, simply follow the 5 easy steps below:

1. Consult the Deed

Make sure your Fund’s Trust Deed allows a pension to be paid

2. Review Investment Strategy

Ensure your Fund’s Investment Strategy reflects the Member’s retirement needs and adjust the strategy if necessary

3. Ensure Pension Fund Income is tax exempt

Use Segregated Method (Bear in mind, Superannuation Warehouse does not use this method)

Use Unsegregated Method and obtain an Actuarial Certificate

4. Register for “Pay As You Go” (PAYG) withholding tax

This is required if:

  • You are under age 60, and/or
  • The payments have a taxable component
5. Complete a Pension Commencement Minutes and start the Pension
  • Decide the date you want to commence the Pension
  • Determine the Market Value of the Assets supporting the Pension Account
  • Determine the tax free and taxable component of the Member’s Account
  • Work out Minimum and Maximum Pension Payment for each Member
  • Sign the Minutes and send a copy to Superannuation Warehouse
6. Lodge a TBAR report to the Tax Office

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:

  • Determine the Member’s Total Superannuation Balance
  • Decide if there will be an income stream (A TBAR is also required for a lump payments)
  • Decide if there will be a lump sum payment
  • Lodge your TBAR report within the required time frame, generally lodged at the end of the financial year or 28 days within the end of the quarter if the balance is in excess of $1 million

Trustees can lodge the TBAR report themselves in a paper format or contact us to lodge their TBAR report electronically. For more guidance on the TBAR reporting process see our TBAR reporting page.

$1.6 Million Transfer Balance Cap

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.

SMSF – Retirement

TBAR Reporting

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:

  • If the total Member balance is 1 million over, the event is reported within 28 days after the end of the quarter in which the event occurs.
  • If the Member balance is less than 1 million it is reported annually.

See our TBAR page for detailed info on reporting events and times frames.

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