There are two types of SMSF (Self Managed Super Fund) pensions:
- An account-based pension.
- A transition-to-retirement income stream (TRIS).
You can have unlimited access to your SMSF account balance once you have both reached your preservation age and retired.
This is done by transferring all your funds into a pension account within your self-managed super fund.
Your preservation age depends on your date of birth, as illustrated in the table below.
|Date of birth||Your preservation age|
|Before 1 July 1960||55|
|1 July 1960 to 30 June 1961||56|
|1 July 1961 to 30 June 1962||57|
|1 July 1962 to 30 June 1963||58|
|1 July 1963 to 30 June 1964||59|
|On or after 1 July, 1964||60|
How long your SMSF account-based pension will last depends on:
- How much you have in your account.
- How much you withdraw each year.
- The investment returns that the remaining funds in your pension account continue to generate.
You can also maintain an accumulation account as well as a pension account within your self-managed super fund if you wish. However, if you do, you need to clearly separate your SMSF assets into the respective accounts.
What are the rules for SMSF account based pensions?
The Australian Taxation Office (ATO) enforces several rules for SMSF account-based pensions. They include the following:
- You must withdraw a minimum amount each year, based on your age.
- You cannot increase the capital (assets) supporting your SMSF pension account once payments to you have commenced. That means you must stop making contributions. You also cannot rollover any additional funds into your self-managed super fund if you don’t have a separate accumulation account.
- Once you die, your pension can only be transferred (or commuted to a lump sum) for one of your dependant beneficiaries.
What are the minimum SMSF pension standards?
If you’re eligible for an account-based pension from your self-managed super fund, you must be paid a minimum percentage of your account balance each year.
This amount depends on your age, as illustrated in the table below.
|Age||Minimum Account Balance
|95 or more||14%|
How does a transition-to-retirement income stream (TRIS) work in an SMSF?
A transition-to-retirement income stream (TRIS) is another option if you have reached your preservation age but are still working.
The general rules of an SMSF TRIS are the same as those that apply to an account-based pension (see above).
In addition to those general rules:
- The total transition-to-retirement payments must not exceed 10% of the balance of the SMSF fund in any financial year.
SMSF Annual Return
An SMSF trustee who is in the pension phase must still lodge their annual returns. This is a legal requirement, whether the fund remains active at the end of the financial year, or if it has been wound up during that time.
Even if your SMSF does not have a tax liability, trustees must lodge a self-managed superannuation fund annual return.
Many trustees who are in the SMSF pension phase mistakenly think that because they are no longer lodging personal income tax returns, they also no longer need to lodge an SMSF annual return.
This assumption is incorrect. It is a legal requirement to lodge an SMSF annual return, even during the pension phase.
The Australian Taxation Office (ATO) is warning SMSF trustees about their regulatory requirements and is paying close attention to those SMSFs that are not meeting their lodgment obligations.
A SMSF annual return is more than an income tax return. It is also used to:
- Report regulatory information.
- Report member contributions.
- Pay the self-managed super fund supervisory levy. This fee is currently $259.
Not all funds have the same lodgment date.
Your annual return should include details of who performed your SMSF audit, otherwise your lodgment will be rejected.
You will not be issued with a notice of assessment by the ATO. This is because self-managed super funds assess their own tax debt or refund, so the lodgment of the annual return is deemed to be an assessment.
Super funds that are not SMSFs must use a fund income tax return form at the end of the financial year (i.e. a different form to the one used for the SMSF annual return). They must also complete a separate super member contributions statement.
How we can help
Our expert SMSF Accountants would be happy to speak or meet with you to discuss your situation. We’ll take the time to understand your circumstances and provide advice that maximises your financial position.
Contact us now.