Retirement – Pension

Just like any other superfund, your SMSF can provide you with pension (or lump sum) benefits in retirement.

When can you start a pension?

To start pension payments, you need to either reach your preservation age and retire; or turn 65.

If you start a super pension income stream, you need to transfer funds from your accumulation account to your retirement account to fund your pension. The earnings on these funds are tax-free in the fund. Moreover, if you are over 65, the pension is tax free in your own name as well.

Note that you can only transfer up to $1.6 million into your retirement account.

Transition to retirement pension

Transition-to-retirement (TTR) pensions can be commenced once you have reached your preservation age while you’re still working. However, the earnings on funds that support TTR pensions are still taxed at 15%, unlike the funds that support your super pension are if you have retired.

How do you start pension?

There are several steps involved in starting a pension and we can help you out with all of them!

1. Value the investments

All assets must be revalued before pension starts. This is fairly easy when it comes to listed securities or managed funds, you should seek real estate valuation if your fund owns a property to ensure that the valuation is reasonable.

2. Prepare pension documents

Check the deed, prepare relevant minutes and provide PDS to the member that is starting a pension.

3. Calculate exempt current pension income

Majority of the funds use non-segregated assets (where specific assets are not allocated to relevant members,but rather percentages are calculated). If this is the case, not only we calculate the relevant percentages but also have them confirmed by an actuary as required by the legislation.

Note that a fund that only has members in retirement phase, or only has members in accumulation phase, is treated as a segregated fund (and does not need an actuarial certificate).

4. Calculate and pay minimum pension each year

The minimum pension varies depending on your age and is updated by government regularly. It is important to make the minimum payment each year, so the fund does not lose the tax benefits.

If you are considering retirement, please contact our office.

Frequently Asked Questions

The pension is tax free after you turn 60.

If you are between your preservation age and 60, the pension income is added to your taxable income where it is taxed at your marginal rates, with credit for tax paid by the fund (15%).

You MUST withdraw your minimum pension each year, with at least one payment.

The exception is if you start pension after 1 June, where you do not need to make a payment that year.

The minimum annual payment amount is worked out by multiplying the member’s pension account balance by a percentage factor. The amount is rounded to the nearest 10 whole dollars. If the amount ends in an exact 5 dollars, it is rounded up to the next 10 whole dollars.

The pension factor depends on your age.

Age 2007–08 2008–09,
2009–10,
2010–11
2011–12,
2012–13
2013–14
onwards
Reduced rates by 50% for the 2019–20 and 2020–21 income years
Under 65

4.0%

2.0%

3.0%

4.0%

2.0%

65–74

5.0%

2.5%

3.75%

5.0%

2.5%

75–79

6.0%

3.0%

4.5%

6.0%

3.0%

80–84

7.0%

3.5%

5.25%

7.0%

3.5%

85–89

9.0%

4.5%

6.75%

9.0%

4.5%

90–94

11.0%

5.5%

8.25%

11.0%

5.5%

95 or more

14.0%

7.0%

10.5%

14.0%

7.0%

If a member dies, the SMSF pension can only be transferred or paid to a person who is a dependant of the member, which includes:

  • a surviving spouse or de facto spouse
  • a child of the deceased who is under 18 years old
  • a child of the deceased, aged between 18 and 25 years old, who was financially dependent on the deceased
  • a child of the deceased, aged 18 years old or over, who has a permanent disability
  • any person who relied on the deceased for financial maintenance at the time of their death
  • any person who lived with the deceased in a close personal relationship where one or both of them provided financial and domestic support and personal care.