In order to commence a Pension (SABP or TRIS) the following step by step process is provided:
Establish an SMSF
Prior to applying to commence a Pension, you must first establish an SMSF. To set up an SMSF, please click here. Once the SMSF has been established, ESUPERFUND will send you an "Establishment Package" which will include the Transaction Bank Account details for the SMSF.
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 Transaction Bank 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 Transaction Bank 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 Transaction Bank Account in other assets like Shares or Term Deposits.
Select your Pension
Before submitting an application to establish a Pension you must decide whether to commence an SABP or commence a TRIS. An SABP is commenced when you are either aged over 65 or are aged between Preservation Age and 64 and are "Retired". A TRIS is commenced if you are NOT retired (e.g. you are still working) and are aged between Preservation Age and 64.
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 an SABP. The definition of retirement in this case is less stringent than for Members under between Preservation Age 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 Preservation Age 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 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. A "Retirement" Declaration that must be signed if you cease employment aged between Preservation Age and 59 can be found here.
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
|Before 1 July 1960
|1 July 1960 – 30 June 1961
|1 July 1961 – 30 June 1962
|1 July 1962 – 30 June 1963
|1 July 1963 – 30 June 1964
|From 01 July 1964
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 an SABP you must apply here. If you are commencing a TRIS 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 "TRIS Mode" or "SABP Mode". 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.
Documentation will be forwarded to you to establish the Pension
Once you submit your Pension Application, documentation will be forwarded 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 forwarded 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, 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. Irrespective of when you receive the Pension documentation, the Pension will be deemed to have commenced on the date nominated in the original application.
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 formally commence the Pension.
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 Transaction 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.
Additional Contributions and Rollovers are allowable after establishing the 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 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 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.
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.
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.
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 Preservation Age 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 Preservation Age 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".
Pension versus Lump Sum
We caution that pension withdrawals and lump sum withdrawals are two different withdrawal types and different rules apply. Given the difference in the taxation treatment of accessing income as a Pension or Lump Sum when you are aged between Preservation Age 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 an SABP (this is the only Pension Type that allows Lump Sum withdrawals).
For more information on the difference between pension withdrawals and lump sum withdrawals, please click here.
Annual Pension Compliance
When you commence a Pension (SABP or TRIS) there are additional compliance requirements for your SMSF. These include converting the Member's "Accumulation Account" to an "SABP Account" or a "TRIS 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’s "SABP"/"TRIS" and "Accumulation" Account to determine what portion of the SMSF earnings are taxable and what portion are tax free. ESUPERFUND attends to these compliance requirements for you at no additional cost. That is our annual fee does not change even if you commence a Pension. Please note that in some cases, an Actuary Certificate is required and the cost of an Actuary Certificate is not included in our annual fee. For more information on Actuarial Certificate, please click here.