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Questions & Answers - Pensions


+ What is a Pension?

When you reach Preservation Age you have the option of commencing a Pension Income Stream from your SMSF. A Pension simply means that periodically (e.g. each month or other period you nominate) cash is transferred from your SMSF Bank Account to your personal Bank Account to fund your living expenses. There are two types of Pensions you can commence in an SMSF as follows:

 
 

Preservation Age

Generally, you must reach preservation age before you can access your super. Use the following table to work out your preservation age.

Date of birth Preservation Age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 01 July 1964 60
 
 

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".

 
 

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 commencing a Pension, please click here.

+ What is "Retirement"?

The definition of "Retirement" varies 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 Simple Account Based 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 as being retired enabling them to have access to their Super Benefit notwithstanding they have returned to work.

+ What is the difference between an SABP and a TRIS?

Essentially there are three main differences between an SABP and a TRIS. Firstly an SABP is commenced when you are aged over 65 or alternatively when you retire and are aged between Preservation Age and 64. A TRIS is commenced when you are NOT Retired and are aged between Preservation Age and 64. Secondly with an SABP you can cash out lump sums whenever you like. With a TRIS you cannot cash out lump sums and can only take a pension stream (up to a maximum of 10% of your Member Benefit). If you have commenced a TRIS and subsequently satisfied a condition of release with a nil cashing restriction (e.g. retirement/permanent incapacity/terminal illness and notified the trustees or reached age 65), your TRIS enters the retirement phase (R-TRIS). Then you can cash out lump sums.

Thirdly, from 01 July 2017, tax on earnings from assets supporting SABP and TRIS is treated differently as a result of the Super Reforms. Earnings on assets supporting TRIS become taxable from 01 July 2017.

For more information on SABP, please click here.

For more information on TRIS, please click here.

+ Why should I Commence an SABP?

The main benefit of commencing an SABP in your SMSF is that earnings from assets supporting the SABP are tax exempt (subject to the Transfer Balance Cap). Consider the benefits when you commence an SABP from your SMSF:

  • You never pay tax on your investment earnings & realised capital gains in the SABP account (e.g. interest and dividends).
  • You can access any level of income from your SMSF subject to an aged based minimum amount.
  • The Pension income you access is tax free if you are aged above 60.
  • The Pension income you access is concessionally taxed if you are aged between Preservation Age and 59.
  • You do not have to change your SMSF Investments when you start a Pension.

For more information on SABP, please click here

+ Why should I Commence a TRIS?

From 01 July 2017 earnings from assets supporting the TRIS become taxable. The only benefit of commencing a TRIS is that you are able to access super benefits from the SMSF (subject to the annual Minimum and Maximum requirements) to meet their living expenses while you are still working.

For more information on TRIS, please click here

+ When can I commence an SABP or a TRIS?

If you are aged over 65 or aged between Preservation Age and 64 and "Retired" you can commence an SABP at any time. To apply click here.

If you are aged between Preservation Age and 64 and NOT "Retired" you can commence a TRIS only. To apply click here.

+ What is the best date to commence a Pension?

If you qualify to commence a Pension you can 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. Usually the earlier you commence a Pension the sooner you will begin to enjoy the tax benefits a Pension provides to Members.

+ How do I commence an SABP or a TRIS with ESUPERFUND?

When you are ready to commence a Pension, ESUPERFUND will attend to all aspects of the setup process for you. You do nothing. 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 NOT "Retired" you have the option to commence a TRIS. To apply click here.
+ How much does it cost to commence a Pension with ESUPERFUND?

FREE! It is FREE to establish a Pension with ESUPERFUND. This compares to market rate to setup a Pension of per Member. This means you can save $1,000 or more if you have 2 or more Members in the SMSF and want to setup a Pension.

+ What additional fees apply to administer a Pension with ESUPERFUND?

When you commence an SABP or a TRIS in your SMSF there are a range of additional compliance requirements necessary each year. These additional compliance requirements are all attended to by ESUPERFUND. Importantly the additional compliance requirements are attended to by ESUPERFUND absolutely FREE! Only our standard annual compliance fee of is payable. This is unprecedented in today's market who will typically charge $2,000 or more to administer an SMSF in Pension Phase.

+ Which Pension should I commence?

This issue is typically confused by clients. In reality there is really no choice. If you are over 65 or you are aged between Preservation Age and 64 and are "Retired" you can only commence a Simple Account Based Pension. 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, "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 as being retired enabling them to have access to their Super Benefit notwithstanding they have returned to work.

+ 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.

If your SMSF is required to lodge a Tax Return for the prior financial year, then the Pension documentation will be unable to be processed until the prior years' annual checklists are submitted. 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 I commence a Pension, is there a Minimum Amount I must access?

Yes. You will be able to choose the amount you take as an SABP or a TRIS each year subject to a minimum percentage drawdown of your account balance depending 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 the Pension 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. There is no maximum Pension Withdrawal that you can take for a Simple Account Based Pension. There is a maximum Pension Withdrawal amount of 10% of your Member Balance for a TRIS.

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 2019 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 2019, that is $12,000.

On 1 July 2019, 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 2020 to 4% of $660,000 or $26,400. This amount must be accessed before 30 June 2020. The recalculation will continue to occur 1 July each year.

+ When I commence a Pension, is there a Maximum Amount I must access?

With a Simple Account Based Pension there is no maximum amount you need to take when you commence a Simple Account Based Pension. This means that can take all your Super Benefit as and when desired.

With a TRIS, the maximum annual pension drawdown for a TRIS is 10%.

+ When can I begin to take my Minimum Pension Payment?

You can commence accessing your Minimum Pension Payment at any time after the Pension commencement date nominated in your Pension application. It does not matter if the Pension documentation has not been signed or returned to our office.

+ How often must I access my Pension payment?

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 exceeds the Minimum Pension Payment required. That is the nominated Pension payment can be paid either monthly, quarterly, half-yearly or on an annual basis, but must be paid at least annually.

+ What Bank Account is my Pension Paid into?

Pension Payments must be made to a 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 exceeds the Minimum Pension Payment required.

+ Who arranges the Pension Payment?

You do. As the Trustee of your SMSF you will need to arrange the transfer of funds from the Transaction Bank Account to your personal Account to evidence the Pension. The transfer can be done in any way you desire. That is the transfer can be done by direct debit or on a case by case basis as you require money from the SMSF such as BPAY, EFT or cheque withdrawals. The main issue to bear in mind is that the Minimum Pension is accessed annually.

+ What if you do not withdraw 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 often is my Minimum Pension recalculated?

In the Pension Commencement Year the Minimum Pension is applied to the Commencement Value of the Pension in that year (prorated if the Pension 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.

+ Can I take a lump sum after I commence a Pension?

There are no restrictions in accessing your capital when you commence a Retirement Phase Pension (SABP or R-TRIS). In effect your SMSF is like an ATM where you can access any amount as a Lump Sum over and above your pension withdrawals. However always be careful that tax may be payable on Lump Sum Withdrawals if aged under 60.

However with a TRIS, you cannot take any Lump Sum withdrawals whatsoever. You are limited to taking up to 10% of your Member Benefit each year as a Pension Payment only. Importantly however, to avoid this restriction your TRIS enters the retirement phase once you "Retire" or turn 65 enabling you to make Lump Sum Withdrawals in retirement.

+ When I commence a Pension, do I have to set up a new separate Bank Account for my SMSF?

No. Only the existing Transaction Bank Account is required. The SABP or TRIS is tracked by ESUPERFUND when preparing your SMSF Annual Compliance requirements and is simply an Accounting Entry in your SMSF.

+ When I commence a Pension, do I have to sell my Existing Investments?

No. 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 as an income stream. Even better the documentation is prepared for you when you are ready to commence your Pension. For example if your SMSF owns Cash and Shares, when you commence the SABP or TRIS 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. The documentation prepared and signed by you is all that is required to evidence that the SABP or TRIS commenced. From your perspective you will not notice anything different about your SMSF. That is your SMSF Bank Account and Investments will be exactly as they were before commencing the SABP or TRIS.

+ What tax is payable by Members who have commenced a Pension?

From 01 July 2017, only the earnings from assets supporting a Retirement Phase Account (SABP or R-TRIS) are tax exempt.

It is important to understand that every Member has two accounts in an SMSF. These Accounts are an "Accumulation Account" and a "Pension Account (SABP or TRIS)". For more information on Pensions, please click here. These accounts are simply "Accounting Accounts" and not actual physical bank accounts. Accordingly whilst your actual Super Benefit will be invested in a range of assets including cash and shares, ESUPERFUND will allocate your Super Benefit between your "Accumulation Account" and a "Pension" in the accounting records of your SMSF.

ESUPERFUND tracks each Members "Accumulation Account" and a "Pension Account" as part of the annual compliance process. No action is required from you. ESUPERFUND will determine what portion of the SMSF belongs to each Member and in turn what portion of the Member Account belongs to each respective Members Accumulation and Pension Accounts on a proportional basis. This percentage is constantly changing during the financial year and is tracked by ESUPERFUND. Importantly as part of the annual compliance process ESUPERFUND will prepare a Member Statement for each Member of the SMSF. This is a legal requirement. The Member Statements are included in the annual compliance documents completed for clients and must be approved by you as the SMSF Trustee before lodgement with the ATO.

As part of the annual compliance process ESUPERFUND will determine the income and realised capital gains made during the financial by the SMSF. These are in turn allocated to each Members Pension and Accumulation Accounts on a proportional basis. Income includes dividends, interest and rent from property. Realised capital gains are gains from the sale of assets like shares and property. It is important to remember that unrealised capital gains (i.e. from assets that have appreciated in value but have not been sold) are never subject to tax until sold.

ESUPERFUND will in turn allocate the SMSF income and realised capital gains derived by the SMSF for a financial year to each Members Pension and Accumulation Account on a proportional basis. The tax rate that applies to the income and realised capital gains allocated to the Members"Accumulation Account" and “TRIS Account” will be taxed as detailed below

  • Income will be subject to tax at 15%
  • Realised Capital Gains will be subject to tax at 15% if the asset is held less than 12 months
  • Realised Capital Gains will be subject to tax at 10% if the asset is held more than 12 months

Conversely the tax rate that applies to the income and realised capital gains allocated to the Members "Retirement Phase Pension Account" will be taxed is 0%. A 0% tax rate is a truly amazing taxation concession afforded to SMSFs providing thousands of dollars in annual taxation savings to Members who commence a Retirement Phase Pension in their SMSF.

For an example of how tax is calculated on the Pension and Accumulation Accounts, please click here.

+ Do I pay tax on Unrealised Capital Gains if I don't sell the asset?

No. It is important to remember that unrealised capital gains (i.e. from assets that have appreciated in value but have not been sold) are never subject to tax until sold. You will however notice when you receive your annual compliance documentation from ESUPERFUND that unrealised capital gains on assets are recorded as income in the SMSF Income Statement. This is a legal reporting requirement as all assets of the SMSF must be revalued to market value at financial year end in order to accurately report each Members Super Benefit in the SMSF. Notwithstanding that the unrealised capital gains appear in your SMSF Income Statement they are excluded from the SMSF Tax Return and not subject to tax until the asset is sold and the capital gain realised.

+ Can I continue to contribute to Super after I commence a Pension?

Yes. You can continue contributing to your SMSF even 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. That is if you are aged under 65 you can contribute to your SMSF even after commencing a Pension with no work test required. If you are aged between 65 and 75 you can contribute to your SMSF even after commencing a Pension if you have worked for at least 40 hours in a period of not more than 30 consecutive days in the particular financial year. 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.

+ What happens to additional contributions made to my SMSF after I commence 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 will mean that you will have two "Accounting Accounts" at the same time in this case, namely an "SABP Account" or “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%.

+ Can I commence Multiple Pensions in my SMSF?

Yes. If you make rollovers or contributions to your SMSF after commencing a Pension these amounts will sit outside the Pension in the "Accumulation Account". This will mean that earnings on this part of your Super Benefit will continue to be subject to tax. If you are eligible for an SABP, it may be appropriate to commence a second SABP with your "Accumulation Account" balance to ensure your entire Super Benefit continues to be completely tax free (subject to the Transfer Balance Cap).

We do caution however that additional Pensions should only be commenced when there is a significant benefit in the Members "Accumulation Account" (e.g. $50,000 or more). Where you are making smaller contributions (e.g. from your monthly employer super contributions) you should not commence a separate Pension with each of these amounts as this becomes administratively burdensome.

+ Do I still need to lodge annual compliance documentation for my SMSF once I commence a Retirement Phase Pension given no tax is payable on my Super Benefit?

Yes. Even though you do not pay tax on the income and realised capital gains on your Super Benefit, your SMSF is still required to prepare Financial Statements and an Income Tax Return each year. Similarly your SMSF must be audited each year.

+ Do I pay tax on my Concessional Contributions after commencing a Pension?

Yes. The 15% contributions tax on Concessional Contributions into an SMSF continues to apply regardless of your pension status.

+ Do I pay tax on Pension Payments I receive from my Pension Withdrawals if I am Over 60?

No. There is no tax payable on Pension Withdrawals after the age of 60.

+ Do I pay tax on Lump Sum Withdrawals I receive from my Simple Account Based Pension (no lump sum withdrawals are allowed for a TRIS) if I am Over 60?

No. You can make lump sum withdrawals whenever you like from your SMSF once you have commenced a Simple Account Based Pension. There is no tax payable on lump sum withdrawals from an SMSF after the age of 60. This means you can access every last cent in your SMSF after 60 and use it in any way you like, tax free! Remember if you have commenced a Simple Account Based Pension it means you are retired and this is a precondition to being able to take lump sum withdrawals.

+ Do I pay tax on Pension Payments I receive from my Pension if I am between Preservation Age and 59?

This depends on the amount of the Pension. Your Super Benefit is made up of two components, namely a Tax Free Component and a Taxable Component. The Tax Free Component typically comes from after tax personal Non Concessional Contributions made by you over time. The Taxable Component typically comes from Concessional Contributions made by you over time which include Employer Contributions and Salary Sacrifice Contributions. Any Pension Withdrawals must be paid in the same proportion as the Tax Free and Taxable Components of the Member's interest in the SMSF. This requirement is known as the "Proportioning Rule".

Under the "Proportioning Rule" and where the Member is aged between Preservation Age and 59, the "Tax Free" Component of the Pension withdrawal is tax free. The "Taxable" Component of the Pension withdrawal is taxed at the Members marginal tax rate less a 15% "Pension Rebate". As a general rule of thumb, assuming that the Member has a minimal "Tax Free" Component and the Pension is the Members sole source of income, then the Member can generally take approximately $40,000 per year in Pension income tax free. Some tax may apply on income drawn above this amount.

Calculating the Tax on Pension Payments between Preservation Age and 59

The process to calculate the tax on Pension Withdrawals paid to a Member who is aged between Preservation Age and 59 is as follows:

  •  
     
    Step 1: Determine the Tax Free Component of your Super Benefit (Note 1)
  •  
     
    Step 2: Determine the Taxable Component of your Super Benefit (Note 2)
  •  
     
    Step 3: The Total of the Taxable and Tax Free Components make up your Total Super Benefit (Note 3)
  •  
     
    Step 4: Calculate the Tax Free Component percentage equal to Note 1 divided by Note 3 (Note 4)
  •  
     
    Step 5: Calculate the Taxable Component percentage equal to Note 2 divided by Note 3 (Note 5)
  •  
     
    Step 6: Multiply the Pension Payment by the Tax Free percentage at Note 4. The result is Tax Free.
  •  
     
    Step 7: Multiply the Pension Payment by the Taxable percentage at Note 5. The result is taxed at the Members tax rate less a 15% Pension Rebate.

Example:

As an example assume you have a Super Benefit of $500,000 made up as follows:

  • "Tax Free" Component: $400,000
  • "Taxable" Component: $100,000
  • Total Super Benefit: $500,000

In this example your "Tax Free" percentage is 80% ($400,000/$500,000) and your "Taxable" percentage is 20% ($100,000/$500,000). Under the "Proportioning Rule" this means that 80% of your Pension withdrawals will be tax free and 20% will be taxable where the Pension withdrawals are made between the Preservation Age and 59.

Assume you withdraw the minimum pension of 4% per annum on your $500,000 Super Benefit (i.e. $20,000). The Pension withdrawn of $20,000 will be 80% tax free (i.e. $16,000) and 20% taxable (i.e. $4,000). In addition you will be allowed a 15% "Pension Rebate" on the taxable portion of the Pension withdrawn, further reducing your tax liability.

In the above example assuming, you are on the 34.50% personal marginal tax rate, you would be assessable on the $4,000 taxable portion of the Pension withdrawn at 34.50%, resulting in $1,380 in tax. Given you also receive a 15% "Pension Rebate" on the taxable portion of the Pension withdrawn of $4,000 (i.e. 15% of $4,000 or $600), the tax liability is further reduced to only $780. This means you pay tax of $780 on a $20,000 Pension withdrawal in the above example.

+ Do I pay tax on Lump Sum Withdrawals I receive from my Simple Account Based Pension (no lump sum withdrawals are allowed for a TRIS) if I am between Preservation Age and 59?

This depends on the amount of the Lump Sum Withdrawal made. Your Super Benefit is made up of two components, namely a Tax Free Component and a Taxable Component. The Tax Free Component typically comes from after tax personal Non Concessional Contributions made by you over time. The Taxable Component typically comes from Concessional Contributions made by you over time which include Employer Contributions and Salary Sacrifice Contributions. Any Lump Sum Withdrawals must be paid in the same proportion as the Tax Free and Taxable Components of the Member's interest in the SMSF. This requirement is known as the "Proportioning Rule".

Under the "Proportioning Rule" and where the Member is aged between Preservation Age and 59, the "Tax Free" Component of the Lump Sum withdrawal is tax free. The "Taxable" Component of the Lump Sum withdrawal is taxed as follows:

  • The amount up to the low rate cap amount is tax free.
  • The amount above the low rate cap amount is taxed at 17%

Low rate cap amount

The application of the low rate threshold for super lump sum payments is capped. The low rate cap amount is reduced by any amount previously applied to the low rate threshold.

Income Year Amount of cap
2018–19 $205,000
2017–18 $200,000
2016–17 $195,000

Remember if you have commenced a Simple Account Based Pension it means you are retired and this is a precondition to being able to take Lump Sum withdrawals.

Example:

As an example assume you have a Super Benefit of $500,000 made up as follows:

  • "Tax Free" Component: $400,000
  • "Taxable" Component: $100,000
  • Total Super Benefit: $500,000

In this example your "Tax Free" percentage is 80% ($400,000/$500,000) and your "Taxable" percentage is 20% ($100,000/$500,000). Under the "Proportioning Rule" this means that 80% of your Lump Sum withdrawals will be tax free and 20% will be taxable where the Lump Sum withdrawals are made between Preservation Age and 59.

Assume you decide to access $100,000 as a lump sum withdrawal in the 2018-2019 Financial Year and are eligible to do so. In this case an amount of 80% will be tax free and the balance will be taxable, namely 20% of the $100,000 or $20,000. The $20,000 assessable amount is then taxed as follows:

  • The First $205,000 of your Taxable Component is tax free.
  • The Taxable Component above $205,000 is taxed at 17%

In the above example as the taxable portion of the Lump Sum of $20,000 is less than $205,000, it is tax free. If you are contemplating large lump sum withdrawals before age 60 and the assessable portion of the Lump Sum is above $205,000, then it may be prudent to defer accessing larger lump sum withdrawals until age 60 when the lump sum withdrawals are tax free.

+ Can I choose to take withdrawals from an SMSF as a Pension or Lump Sum when aged between Preservation Age and 59?

If you have NOT commenced a Pension from your SMSF all withdrawals made from your SMSF will be treated as a Lump Sum withdrawal when aged between preservation age and 59 and “Retired”. Alternatively, if you have commenced a Pension from your SMSF, you have the choice to make either Pension or Lump Sum withdrawal in addition to the annual minimum pension amount, which must be made as Pension withdrawals.

We caution that pension withdrawals and lump sum withdrawals are two different withdrawal types and different rules apply. For more information on the difference between pension withdrawals and lump sum withdrawals, please click here.

+ Can one Member commence a Pension and another Member remain in Accumulation Mode?

Yes. Each Member's Benefit in an SMSF is tracked separately. This means that one Member can commence an SABP or a TRIS, whilst the other Member remains in Accumulation Mode.

+ If one Member in my SMSF has commenced an SABP and the other Member has not what tax rate does my SMSF pay?

If there are two or more Members in the SMSF and one or more Members have not commenced an SABP, then those Member's 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 detailed explanation and an example, please click here.

+ If I want to commence a Pension when should I notify ESUPERFUND?

In order to commence an SABP or a TRIS you need to provide the Market Value of your SMSF at the Pension commencement date. Logistically this means that you can only apply to establish an SABP or a TRIS after the intended setup date as this is the only way you can know what the Market Value of the SMSF is at the date of commencement. It is important to understand that the documentation provided to you will be dated the date you want to commence the SABP or TRIS. This ensures that you do not lose any valuable taxation savings.

Example:

Assume you want to commence an SABP or a TRIS on 1 July 2018. This means that you should complete our Online Pension Application Form sometime after this date. There is no set timeframe after the intended date you should Apply Online, however it should generally be within 30 days. Assuming you apply on say 10 July 2018, all documentation will be sent to you after this date, but it will be dated 1 July 2018 as this was your intended start date. This ensures that you do not lose any valuable taxation savings.

+ Can I Rollover a Pension from another Superfund?

Yes. You can Rollover a Pension from another Superfund using the standard Rollover Process that can be found here. It is important to understand that when you Rollover a Pension from the existing Superfund that Pension will cease. The amount that is Rolled Over will be allocated to the Member's "Accumulation" Account. The Member can in turn recommence a Pension at that time in the SMSF by completing our online Pension Application here.

+ Does my SMSF have to prepare documentation to evidence my Pension withdrawals?

If you commence a Pension and are aged between Preservation Age and 59, 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 between Preservation Age and 59 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 are prepared by ESUPERFUND absolutely FREE of charge! 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.

+ Where can I find an example of the Tax Savings to commence a Pension?

To see the potential Tax Savings associated with commencing a Pension, please view our Case Study here.