In order to commence a Simple Account Based Pension or Transition to Retirement Pension the following step by step process is provided:

Step 1:  Establish a SMSF

Prior to applying to commence a Pension, you must first establish s SMSF here.  Once the SMSF has been established, ESUPERFUND will send you an "Establishment Package" which will include the ANZ V2 Plus Account details for the SMSF. 

Step 2:  Consolidate your Super into the SMSF

Once your SMSF has been established and you have received an "Establishment Package" from ESUPERFUND you can commence to Rollover your existing Super Benefit and make Contributions into your ANZ V2 Plus Account.  It is important to understand that only once you have rolled over your existing Super Benefit and have made all the Contributions you wish to make to your SMSF ANZ V2 Plus Account can you apply to establish a Pension.  This is because any amounts rolled over or contributed after the Pension has commenced will sit outside your Pension in your "Accumulation Account".  Importantly you can still apply to establish a Pension even if you have subsequently invested your cash in the ANZ V2 Plus Account in other assets like Shares or Term Deposits.  

Step 3:  Select your Pension

Before submitting an application to establish a Pension you must decide whether to commence a Simple Account Based Pension or Transition to Retirement Pension (TRAP).  A Simple Account Based Pension is commenced when you are either aged over 65 or are aged between 55 and 64 and are "Retired".  A TRAP is commenced if you are NOT retired (eg you are still working) and are aged between 55 and 64.  It is noted that a TRAP is automatically converted to a Simple Account Based Pension when you retire or turn 65.

For a Member aged between 60 and 64 "retirement" means you simply need to cease your employment.  The intention to return to the workforce is irrelevant.  This means that you can essentially return to work soon after ceasing your employment after age 60, but you will still deemed to be retired and able to commence a Simple Account Based Pension.  The definition of retirement in this case is less stringent than for Members under between 55 and 59.  A "Retirement" Declaration must be signed if you cease employment after age 60 and can be found here. 

For a Member aged between 55 and 59 "retirement" means your employment ceases and you never intend to work again either on a full-time or part-time basis (defined as more than 10 hours per week).  This declaration must be made to your SMSF and is made at the time you cease work.  It is noted that whilst a person aged between 55 and 59 never intends to work again, they may ultimately do so. This will not alter the person's status as being retired enabling them to have access to their super benefit notwithstanding they have returned to work.  A "Retirement" Declaration that must be signed if you cease employment aged between age 55 and 59 can be found here.  

Step 4:  Apply for a Pension through the ESUPERFUND Website

At this stage you can apply to establish a Pension online through the ESUPERFUND Website.   If you are commencing a Simple Account Based Pension you must apply here.  If you are commencing a Transition to Retirement Pension (TRAP) you must apply here.  It is important to understand that when you apply to commence either type of Pension in your SMSF you are not commencing a new type of Superfund called a "Pension Fund" as most mistakenly believe.  You are simply converting the "mode" of your established SMSF to "Pension Mode", allowing you enjoy the amazing tax benefits that come with establishing the Pension.  It is also important to note that each Member has a separate benefit in your SMSF.  Accordingly a separate Pension Application must be submitted for each Member that wishes to commence a Pension. 

Step 5:  Documentation will be mailed to you to establish the Pension

Once you submit your Pension Application, documentation will be mailed to you for signing to evidence the Pension establishment.  The documentation will be prepopulated with all details and you are simply required to sign and return it.  The Pension documentation mailed to you will also detail your minimum and maximum pension required to be withdrawn per annum.

It is important to note that when you submit a Pension application online with ESUPERFUND you are required to nominate a Pension Commencement Date between 1 July of the current financial year and today's date.  The date nominated will be the Pension Commencement Date. 

If your SMSF is required to lodge a Tax Return for the prior financial year and has not done so, then the Pension documentation will be unable to be processed until the prior years' tax return has been prepared and lodged.  If the prior years' tax return has been lodged or is not required to be lodged you can expect to receive the Pension documentation for signing within 5 working days of making the Pension application.  Irrespective of when you receive the Pension documentation, the Pension will be deemed to have commenced on the date nominated in the original application.  This means that the tax benefits begin to accrue from that date notwithstanding that the documentation may not be signed until a later date. 

Step 6:  Sign and Return the Pension Documentation

On receiving the documentation to establish your Pension, you will need to sign the documentation where indicated and return to ESUPERFUND.  It should be noted that the documentation is kept on file on receipt by ESUPERFUND and does not need to be lodged with the Australian Taxation Office.  Please be aware that ESUPERFUND will not notify you on the receipt of the documentation as this is unnecessary.  This is because the Pension commences on the date you specify in the Pension Application when you submit your Pension Application online.  No additional notification is required from ESUPERFUND or the Australian Taxation Office to formerly commence the Pension.

Step 7:  Begin paying the Pension

You can begin to pay your Pension at any time after the Pension Commencement Date nominated in the Pension Application.  Pension payments must be made to your personal Bank Account.  You will need to arrange to transfer monies from your SMSF ANZ V2 Plus Bank Account to your personal Bank Account to evidence the Minimum Annual Pension Payment required.  The transfer of monies can occur at any time and for any amount during the Financial Year as long as it exceeds the Minimum Pension Payment required.  That is the nominated Pension payment can be paid either monthly, quarterly, half-yearly, on an annual basis or other timeframe nominated by you, but must be paid at least annually.  Importantly you do not need notification from the ATO to commence the Pension.

Step 8:  Additional Contributions and Rollovers are allowable after establishing the Pension

Before you commence a Pension your SMSF Benefit is recorded in your "Accumulation Account".  When you commence a Pension your SMSF Benefit is transferred and recorded in your "Pension Account".  These are simply "Accounting Entries" in your SMSF and do not require separate Bank Accounts for each Account Type.  Unlike Retail Funds, a SMSF can accept Contributions (subject to the normal Contributions Rules) and Rollovers after the Pension has commenced.  These Contributions and Rollovers continue to be made to the SMSF ANZ V2 Plus Bank Account setup for your SMSF.  When you make additional Contributions and Rollovers to your SMSF after you commence a Pension these Contributions and Rollovers are allocated to your "Accumulation Account".  This will mean that you will have two "Accounting Accounts" at the same time in this case, namely a "Pension Account" paying your Pension and an "Accumulation Account" which represents the additional Contributions and Rollovers made to your SMSF after commencing the Pension.  The difference between each Account is the "Pension Account" does not pay tax on earnings and realised capital gains but the "Accumulation Account" does pay tax on earnings and realised capital gains at up to15%.

Step 9:  Commencing Multiple Pensions

If you make a significant Rollovers or Contributions to your SMSF after commencing a Pension this will sit outside the Pension in the "Accumulation Account" as detailed above.  This will mean that earnings on this part of your Super Benefit will continue to be subject to Tax.  In this case it may be appropriate to commence a second Pension with your "Accumulation Account" balance to continue to ensure your Super Benefit earnings continue to be completely tax free.  We do caution however that additional Pensions should only be commenced when there is a significant benefit in the Members "Accumulation Account" (eg $100,000 or more).  Where you are making smaller contributions (eg from your monthly employer super contributions) you should not commence a separate Pension with each of these amounts as this becomes administratively burdensome.  You should note that ESUPERFUND still provides you with a solution for these contributions, to ensure even these smaller amounts are consolidated into your Pension via our annual "merging" strategy detailed next. 

Step 10:  Merging the Accumulation and Pension Accounts

As part of the annual compliance process ESUPERFUND will review each Members "Accumulation" and "Pension" Account balance.  Where the Member has a balance in their "Accumulation Account" ESUPERFUND will automatically merge the balance in the "Accumulation" Account with the Members "Pension" Account.  Merging the "Accumulation" and "Pension" Accounts means that the Pension commenced must be "commuted" (ie stopped), and both the "Accumulation" and "Pension" Accounts merged.  A new Pension with the Members total Super Benefit is then commenced.  This process is administratively burdensome so it is usually recommended that this "merging process" occurs only once per annum on 1 July.  The great news is that ESUPERFUND will automatically merge these accounts to ensure your Super Benefit retains its tax free status.       

Step 11:  Recalculation of Minimum and Maximum Annual Pension Payment

It is important to understand that the Minimum and Maximum Pension is recalculated annually on 1 July each year based on each Members balance at that date.  Importantly at the end of each Financial Year, once the year end Financial Statements have been prepared for your SMSF, ESUPERFUND will automatically recalculate the Minimum and Maximum Pension for you and notify you of the amounts.  In addition ESUPERFUND will send you a reminder the following May (one month before the end of the Financial Year) reminding you of the Minimum and Maximum Pension to be taken to ensure you access the correct amount. 

Step 12:  Annual Payment Summary

As you are aware Pension Income accessed by a Member after age 60 is tax free to the Member.  This is one of the main attractions of commencing a Pension after age 60.  Given that the Pension Income is tax free, the income accessed by the Member does not need to be declared in that Members annual tax return.  Similar or equal taxation benefits can apply if a Member commences a Pension between age 55 and 59.  However in this case the Pension accessed must be declared in that Members annual tax return.  Importantly ESUPERFUND prepares an "Annual Payment Summary" for each Member who has commenced a Pension who is aged between 55 and 59.  The "Annual Payment Summary" details all the information required to include in the Members annual tax return including the "taxable" part of the Pension and any associated "Pension Rebate".

Step 13:  Pension versus Lump Sum

Given the difference in the taxation treatment of accessing income as a Pension or Lump Sum when you are aged between 55 and 59, it is sometimes preferable to treat withdrawals as a combination of both a Pension and Lump Sum, rather than solely as a Pension once you commence a Simple Account Based Pension (this is the only Pension Type that allows Lump Sum withdrawals).  This is demonstrated by the example here.  Trying to determine the optimal way to treat withdrawals can be difficult.  This is why ESUPERFUND does it for you as part of the annual compliance process. FREE! 

Step 14:  Annual Pension Compliance

When you commence a Pension there are additional compliance requirements for your SMSF.  These include converting the Member's "Accumulation Account" to a "Pension Account" and tracking the movement in each of these "Accounting Accounts".  In addition the earnings of the SMSF must also be prorated between each Member and in turn each Member "Pension" and "Accumulation" Account to determine what portion of the SMSF earnings are taxable and what portion are tax free.  Importantly ESUPERFUND attends to ALL these compliance requirements for you absolutely FREE!  That is our annual compliance fee does not change even if you commence a Pension.