Account Based Pension

An Account Based Pension can be started when you are retired and reached the preservation age or reached 65 years of age. This type of pension account allows you to have unlimited access to your superannuation benefits. There are certain minimum amounts which have to be withdrawn on an annual basis for the Account Based Pension to retain its tax-free status.

A pension has the character of regular payments. These payments can be once a year, on a monthly, quarterly or other regular basis. The difference between a pension and a lump sum amount is that a lump sum is paid as a once-off payment.

Minimum Payments – Current

Depending on your age, you must withdraw a minimum amount from the Account based Pension each year. In response to the negative economic effects of COVID-19, the Government has halved the percentage of minimum pension payments for the 2020 – 2023 financial years. The Government has decided to extend the temporary relief for a further 12 months. It will not apply to defined benefit income streams (as is currently the case).

See the table below for percentages linked with different age categories:

Age of recipient Percentage Factor (halved for 2020 – 2023 years ) Percentage Factor (2024 and onwards)
Under 65 2% 4%
65 – 74 2.5% 5%
75 – 79 3% 6%
80 – 84 3.5% 7%
85 – 89 4.5% 9%
90 – 94 5.5% 11%
95 or more 7% 14%
Minimum Payments – For years before 2020

In response to the downturn in global financial markets, the government reduced the percentage of minimum payments from 2008. This was referred to as ‘pension drawdown relief’ by the ATO. This enabled Members to preserve more capital in the SMSF. The minimum payment amount returned to normal in the 2014 FY up until the 2019 FY. The government has now halved the percentage of minimum pension payments for the 2020 & 2021 FY to provide relief from the economic impact of COVID-19.

Age Percentage of Account Balance
2008 FY 2009 -2011 FY 2012-2013 FY

2014-2019 FY

 2020 & 2021 FY
Under 65 4% 2% 3% 4% 2%
65-74 5% 2.5% 3.75% 5% 2.5%
75-79 6% 3% 4.5% 6% 3%
80-84 7% 3.5% 5.25% 7% 3.5%
85-89 9% 4.5% 6.75% 9% 4.5%
90-94 11% 5.5% 8.25% 11% 5.5%
95 or more 14% 7% 10.5% 14% 7%

Exempt Current Pension Income (ECPI)

When an account-based pension fails to meet the minimum pension standards it will cease for income tax purposes from the start of that financial year and will lose eligibility to claim exempt current pension income.

Notes

  1. Minimum amount calculated on 1 July each year for the transition to regular retirement payment
  2. In the first year of the account-based income stream, work out the minimum payment pro rata on effective days in the year
  3. Minimum amount to be rounded up to the nearest $10
  4. These minimum amounts are set out in the Superannuation Legislation (click on the link for the legislation)

The ATO also has a video explaining how a Member can start to pay benefits to themselves and what conditions they need to meet in order to make income stream payment. Please see the video below.

SMSF paying an income stream

Trustees must minute their decision to start a Pension so that it can come into effect. Feel free to use our templates for a Pension Commencement Minute (pdf) (Word), to document your decision. There are many more documents available for download from our free downloads section.

Coronavirus effect on pensions

The Coronavirus has negatively affected the pension account balances of many SMSF Members. To assist Members with pension accounts, the government has halved the minimum annual payment required for the 2020 – 2023 financial years. For a video explaining this, please see our Coronavirus Relief page.

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