Pension Types
The two types of Pensions that you can commence in an SMSF are as
follows:
Simple Account Based Pension:
A Simple Account Based Pension (SABP) is an income stream that you
receive from your SMSF when you reach age 65 or alternatively when you are aged between Preservation Age and 64 and "Retired".
For more information on SABP, please click
here.
Transition to Retirement Pension:
A Transition to Retirement Pension is an income stream that you commence
in your SMSF when you are aged between
Preservation Age and 64 and NOT "Retired". It is also known as a TRIS/TRAP.
For more information on TRIS, please click
here.
Which Pension should you commence?
If you are over 65 or you are aged between Preservation Age and 64 and
are "Retired" you can only commence an
SABP. If
you are aged between Preservation Age and 64 and are NOT "Retired" then
you can only commence a
TRIS. Therefore
in order to determine which Pension to commence the definition of
"Retirement" is important and the definition will vary depending on when
you cease work.
If you cease employment after age 60, "Retirement" means you simply
cease your employment. In this case 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 Pension.
The definition of retirement in this case is less stringent than for
those under 60.
If you cease employment between Preservation Age and 59, "Retirement"
means that at the time you ceased employment you never intended 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 employment. It is noted that whilst a
person who ceases employment when aged between Preservation Age and 59
never intends to work again, they may ultimately do so. This will not
alter the person's status of being retired enabling them to have access
to their Super Benefit notwithstanding they have returned to work.
As soon as you retire from the workforce and meet the
definition of "Retirement', please complete the "Retirement" Application
here.
Investments do not change
Nothing changes when you commence a Pension. That is your investments
stay as they are. All that happens is that you execute documentation declaring that you wish to commence accessing your Super Benefit
as an income stream. The documentation is prepared for you by
ESUPERFUND when you are ready to commence your Pension. For
example if your SMSF owns cash and shares, then when you commence a
Pension these assets stay as they are. You do not need to sell the
shares or transfer the cash to another account in the above example.
Minimum Pension Income
Irrespective of whether you commence an
SABP or a
TRIS, you must take a
Minimum Pension amount annually. The Minimum Pension amount is
calculated as a percentage of your Super Balance based on your age as
follows:
| Age Range |
Minimum Pension Factor |
| Under 65 |
4% |
| 65 - 74 |
5% |
| 75 - 79 |
6% |
| 80 - 84 |
7% |
| 85 - 89 |
9% |
| 90 - 94 |
11% |
| 95 or more |
14% |
In the Pension Commencement Year the percentage to be taken is applied
to the Commencement Value of the Pension in that year (prorated if
commenced part way during the year). Importantly each Financial Year the
Pension Balance is recalculated on 1 July and the percentage is applied
to the new balance on that date to determine the minimum amount that
must be drawn in the relevant year.
If a SMSF fails to meet the minimum pension payment requirements in a
financial year, the pension will be taken to have ceased at the start of
that financial year.
Example:
For example, assume your SMSF has total assets of $1,000,000. The SMSF
has 2 Members, you and your Spouse. Your proportional ownership of the
SMSF is 60% so your Super Benefit in the SMSF is $600,000. You decide to
commence a Pension with your Super Benefit but your Spouse who has a
balance in the SMSF of $400,000 does not commence a Pension as he/she is
only aged 50.
Accordingly you apply to commence a Pension using the ESUPERFUND online
Pension Application. You nominate a commencement date of 1 January 2024
and are 60 years of age at the date of the Pension commencement. In this
case the minimum Pension you must take per annum is 4% or $24,000.
However given that the Pension is being commenced halfway during the
year then only half of the minimum pension payment must be accessed
before 30 June 2024, that is $12,000.
On 1 July 2024, assume that the SMSF assets have increased to
$1,100,000. Your 60% proportional interest in the SMSF will in turn
increase to $660,000. In this case the minimum pension amount will be
recalculated for the following year ending 30 June 2025 to 4% of
$660,000 or $26,400. This amount must be accessed before 30 June 2025.
The recalculation will continue to occur 1 July each year.
Maximum Pension Income
With an SABP,
there is no maximum amount you need to take when you commence an
SABP. This means that you can take all your Super Benefit as and
when desired.
With a TRIS, the
maximum annual pension drawdown for a TRIS is 10%. This amount
is not prorated if the Pension is commenced part way through the
financial year.
If a SMSF fails to meet the maximum pension payment requirements in
a financial year, the pension will be taken to have ceased at the
start of that financial year.
Payment Frequency
Pension payments must be made to your personal Bank Account.
You will need to arrange to transfer monies from your SMSF 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
is within the Minimum and Maximum Pension Payment thresholds. That
is the nominated Pension payment can be paid either monthly,
quarterly, half-yearly, on an annual basis or other timeframe you
elect, but must be paid at least annually.
Not accessing the Minimum Pension Payment
An SMSF must adhere to the Minimum Pension Payment rules. If a
Member does not receive their Minimum Pension Payment for a
particular financial year, the pension will be taken to have ceased
at the start of that financial year. With a Pension in the
Retirement Phase (SABP or R-TRIS), the tax free status of the SMSF
income and realised capital gains may be at risk as the Member may
not be considered to be in tax-free retirement Pension Phase. In
addition one of the objectives of each SMSFs Investment Strategy is
to have sufficient liquidity to meet all SMSF outgoings including
Pension Payments. Accordingly to ensure that you do not breach the
SMSF Investment Strategy and Pension Regulations you must ensure
there is always sufficient liquidity to meet all Pension Payment
requirements of the SMSF.
How long does it take to establish a Pension?
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.
You can expect to receive the Pension documentation for signing
within 5 working days of making the Pension application if no
further information is required from you.
When to commence accessing the Pension
You can commence accessing your Pension at any time after the
Pension commencement date nominated in the online Pension application made on the ESUPERFUND website. It does not matter if
the Pension documentation has not been signed or returned to our
office.
Additional Contributions and Rollovers are allowable after
commencing a Pension
You can continue to contribute to your SMSF and rollover monies to your SMSF from another Superfund, after you
commence a Pension. For contributions you are still subject to the
contribution rules. For more information on the contribution rules,
please click
here. You should bear in mind that Concessional Contributions (which include Employer and Salary Sacrificed Contributions) continue to be subject to tax at 15% even after you commence a
Pension.
Allocating Contributions and Rollovers after commencing a Pension
Before you commence a Pension (SABP or TRIS) your SMSF Benefit is
recorded in your "Accumulation Account". When you commence an SABP
or a TRIS your SMSF Benefit is transferred and recorded in your
"SABP Account" or "TRIS Account". These are simply "Accounting
Entries" in your SMSF and do not require separate Bank Accounts for
each Account Type.
Unlike Retail Funds, an SMSF can accept contributions (subject to
the normal contributions rules) and rollovers after the SABP/TRIS
has commenced. These contributions and rollovers continue to be made
to the Transaction Bank Account setup for your SMSF. When you make
additional contributions and rollovers to your SMSF after you
commence a pension (SABP or TRIS), they are allocated to your
"Accumulation Account".
This means that you will have two "Accounting Accounts" at the same
time in this case, namely an "SABP Account" or a "TRIS 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
"SABP Account" does not pay tax on earnings and realised capital
gains but the "Accumulation Account" and "TRIS Account" do pay tax
on earnings and realised capital gains at up to 15%.
Commencing Multiple Pensions
If you make rollovers or contributions to your SMSF after commencing
a Pension these amounts will sit outside the Pension in the
"Accumulation Account" as detailed above. This means that earnings
on this part of your Super Benefit will continue to be subject to
tax.
You should obtain your own independent financial advice about
whether it is more appropriate to commence a second SABP with your
“Accumulation Account” balance if you have remaining cap space in
the Transfer Balance Account.
What if a second SMSF Member has not commenced an SABP?
If there are two or more Members in the SMSF and one or more Members
have not commenced an SABP, then those Members' share of the SMSF
still attract tax at up to 15%. Of course those Members can also
commence an SABP when eligible, reducing the tax rate on their share
of the SMSF income and realised capital gains to 0% also. When
ESUPERFUND attends to the annual compliance work for the SMSF, the
assets will be prorated between the assets that are in "SABP
Account" and the assets that are in "Accumulation Account" and/or
"TRIS Account".
For a detailed explanation and an example, please click
here.
PAYG Documentation
If you commence a Pension and are aged below 60, the Pension Income
you access must be declared in your personal Income Tax
Return. To do this the SMSF must provide to each Member aged
below 60 PAYG documentation with the amounts that must be declared
in your Tax Return and any rebates that may apply. The PAYG
documentation including the calculation of the relevant amounts to
include in your Tax Return is prepared by ESUPERFUND at no
additional cost. It should be noted that no PAYG documentation is
required for Pension withdrawals made after age 60 given that these
withdrawals are tax free and do not need to be declared in your
personal tax return.
Pension Setup
The cost of establishing a Pension with ESUPERFUND is included in our Annual Administration Fee. Our complete Fee Schedule can be found here.
Ongoing Pension Administration
When you commence a Pension in your SMSF there are a range of
additional compliance requirements necessary each year. These
additional compliance requirements are all attended to by
ESUPERFUND. The ESUPERFUND Annual Administration Fee does not change even if
you commence a Pension. Please note that in some cases, an Actuarial
Certificate is required and the cost of an Actuarial Certificate is
not included the ESUPERFUND Annual Administration Fee. For more information on
Actuarial Certificate, please click here.
Apply Now
When you are ready to commence a Pension, ESUPERFUND will attend to
all aspects of the setup process for you. To establish a Pension
simply determine which Pension applies to you and click below to
apply:
If you are aged over 65 or you are aged between Preservation Age and
64 and are "Retired", you have the option to commence an SABP. To
apply click here.
If you are aged between Preservation Age and 64 and are NOT
"Retired" you have the option to commence a TRIS. To apply
click here.