SMSF Superfund - Starting a Pension in your Self Managed Super Fund
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Pensions

SMSF Pension

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Regardless of whether you commence a TRIS or an account based pension, you must withdraw a minimum pension amount annually. The minimum pension amount is based on your age and calculated as a percentage of your super balance as follows:

 

55 – 64 = 4%
65 – 74 = 5%
75 – 79 = 6%
80 – 84 = 7%
85 – 89 = 9%
90 – 94 = 11%
95+       = 14%

 

With an account based pension there is no maximum limit on what you can withdraw, meaning that the member can take the whole balance of the fund as and when desired. With a TRIS, the maximum annual amount you can withdraw is 10% of the members super fund balance.

Once you reach your preservation age you may choose to either commence a transition to retirement income stream (TRIS) or if you are retired you can commence an account based pension. The main difference is that the TRIS pays benefits before retirement whilst a pension pays benefits after retirement.

 

Transition to retirement income stream (pre-retirement):

 

Transition to Retirement allows a member who has reached their preservation age to access their superannuation benefits through an income stream even whilst they are still working. With a TRIS you may be able to reduce your working hours without reducing your income. This can be done by topping up your part-time income with a regular ‘income stream’ from your SMSF. Once a member commences a TRIS they will have 2 accounts within their SMSF. One being their income stream account and the second being an accumulation account accepting future contributions.

 

Account based pension (post-retirement):

 

An account based pension is a way of receiving your superannuation benefits as an income stream after you have reached your preservation age and have permanently retired. Income within an account based pension is not taxed, regardless of the earnings being classed as income or capital gains. Account based pensions are very flexible as they allow the member to choose how much income is received each year, as long as it is satisfies the minimum withdrawal limit. A member also has the flexibility to withdraw lump sum amounts from their account in addition to the pension amount.

 

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Once you reach your preservation age, you can start withdrawing money out of your SMSF. 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

 

 

Benefits of commencing a Pension

There are several benefits from commencing a pension in your SMSF.  The initial benefit is that you are able to begin accessing your super funds after preservation age even if you are still working, which means you have the option to reduce your working hours whilst retaining the same income level or to have access to additional funds to help with living expenses as and when they arise.  However the main benefit is that the SMSF tax rate effectively reduces to NIL. This means that all income and realised capital gains on the members share of the SMSF after the pension has commenced will be tax free.

(Note: From 1 July 2017, earnings from assets supporting a TRIS will be taxed at 15%. This will apply to all TRIS regardless of the date the TRIS commenced.)

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Pension Commencement

Simply click on the “get started” button if you want to start a pension in your SMSF and one of our SMSF consultants will call you to discuss your needs. We will provide you with all the documentation services required to commence your pension including:

 

– Member application and pension agreement
– Condition of release declaration
– Pension commencement minutes
– Minimum and maximum pension calculations
– PAYG Withholding registration (if required)

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Before you start a pension, you need to ensure that you are fully informed of all the options available and what is suitable to your particular retirement circumstances. SMSF superfund can advise you on these matters and make the process of retiring easier for you, while maximising all available benefits.

 

Get Started Crossword

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For more information see the Australian Taxation Office document

“Paying benefits from a self-managed super fund”

Paying benefits from a SMSFATO