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Retirement and Starting a Pension with Your SMSF

Reaching retirement marks an important milestone, and for Self-Managed Super Fund (SMSF) members, it opens the door to starting a pension income stream.

 

An SMSF pension provides a tax-effective way to access your retirement savings while maintaining control over your investments.


At HelloLedger, we guide trustees through the setup, compliance, and reporting requirements of SMSF pensions, ensuring your fund meets ATO regulations at every step.

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What Is a Pension in an SMSF?

A pension is a regular income stream paid from your SMSF balance once you’ve met a condition of release, such as retirement or reaching preservation age. SMSF pensions are tax-effective, offering concessional tax rates or even tax-free income depending on your age and fund status.

Types of SMSF Pensions

1. Account-Based Pension

The most common SMSF pension, offering flexible income payments.

2. Transition to Retirement Income Stream (TRIS)

Allows members to access superannuation while continuing to work part-time after reaching preservation age.

    • Tax-Free Benefits: Payments and earnings are tax-free for members aged 60 and over.

    • Flexible Payments: Members must meet minimum drawdown requirements, but payments can exceed these amounts.

    • Tax Treatment:

      • Earnings are taxed at 15% until retirement.

      • Payments are tax-free for members aged 60 and over.

Eligibility to Start a Pension

You can start an SMSF pension if you meet a condition of release, including:

  • Reaching preservation age (between 55–60) and retiring permanently.

  • Reaching age 65, regardless of employment status.

  • Ceasing an employment arrangement after turning 60.

  • Experiencing permanent incapacity or a terminal medical condition.

Minimum Pension Payment Requirements

SMSFs must make minimum annual payments based on the member’s age and account balance.

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Age                  Minimum Percentage

Under 65         4%

65–74               5%

75–79               6%

80–84               7%

85–89               9%

90–94              11%

95+                   14%

Key Compliance Requirements for SMSF Pensions

  • Transfer Balance Cap:
    - A maximum of $1.9 million can be transferred into the tax-free pension phase.
    - Excess funds must remain in the accumulation phase and are taxed at 15%.

  • Reporting to the ATO:
    - Trustees must report Transfer Balance Account (TBA) events to monitor caps.

  • Audits and Documentation: 
    - Annual audits and financial statements are required to ensure compliance.

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Conditions of Release for Accessing Superannuation

A condition of release determines when SMSF members can access their superannuation benefits. These conditions are regulated by the ATO and must be met to avoid penalties or the fund being declared non-compliant.collectibles, making price predictions uncertain.

  1. Reaching Preservation Age and Retiring
    Members can access their super at their preservation age (between 55–60) if they retire permanently.
     

  2. Reaching Age 65
    Members can access their super at age 65, even if they are still working.
     

  3. Ceasing an Employment Arrangement After Age 60
    Members can access super if they cease an employment arrangement after turning 60, even if they continue working in another role.
     

  4. Transition to Retirement Income Stream (TRIS)
    Allows members to access partial income while continuing to work after reaching preservation age.
     

  5. Permanent Incapacity
    Super can be accessed early if a member is permanently incapacitated and unable to work.
     

  6. Terminal Medical Condition
    Members diagnosed with a terminal illness may access super tax-free, provided medical certifications confirm a life expectancy of 24 months or less.
     

  7. Severe Financial Hardship
    Members may access up to $10,000 if they have been on income support payments for at least 26 weeks and cannot meet living expenses.
     

  8. Compassionate Grounds
    Early access may be granted for medical treatment or care, funeral expenses, preventing foreclosure on a home.
     

  9. Death of a Member
    Super benefits are paid to beneficiaries or the estate as a lump sum or pension.
     

  10. Temporary Residents Leaving Australia
    Temporary residents can claim their super when leaving Australia permanently via a Departing Australia Superannuation Payment (DASP).
     

  11. Small Balances for Lost Members
    Members with balances below $200 may access their super if considered lost members.
     

  12. Balances Under $300 for Former Employees
    Small balances may be withdrawn by former employees under specific conditions.
     

  13. Release Authority Payments
    Super may be released to meet tax obligations, such as Division 293 tax for high-income earners and excess contributions tax.

Benefits of Starting a Pension in Your SMSF

  • Tax-Free Income:

    • Pension payments are tax-free for members aged 60 and over.

    • Investment earnings are tax-free in the pension phase.

  • Flexible Payments:

    • Choose the frequency and amount of payments, as long as you meet the minimum drawdown requirements.

  • Wealth Management:

    • Retain control over investment decisions and the growth of your SMSF balance.

  • Estate Planning Benefits:

    • Plan for death benefit payments to your dependents or estate tax-effectively.

What Is a Lump Sum Payment in an SMSF?

A lump sum payment is a one-off withdrawal made from your SMSF balance once you’ve met a condition of release, such as retirement, reaching preservation age, or financial hardship.

 

Lump sum payments can be tax-free or taxed at concessional rates, depending on your age, the taxable components, and whether the payment is made from the accumulation or pension phase.

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SMSF Pensions and Retirement FAQs

  • What is the preservation age, and how does it affect my SMSF?

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  • Your preservation age is the minimum age you can access super funds, currently between 55 and 60 depending on your birthdate. Once you reach this age and retire, you can start a pension.

  • Is there a tax on SMSF pension payments?

     

  • - Under 60: Pension payments are taxed at marginal rates, with a 15% tax offset.

  • - 60 and Over: Pension payments are tax-free.

What is the Transfer Balance Cap, and how does it affect me?

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The Transfer Balance Cap limits the amount transferred into the pension phase to
$1.9 million. Balances exceeding this cap remain in the accumulation phase and are taxed at 15%.

Can HelloLedger help set up and manage my SMSF pension?

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Yes! HelloLedger handles pension setup, compliance, and ATO reporting to keep your fund audit-ready.

  • Can I continue contributing to my SMSF after starting a pension?

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  • Yes, but contributions will remain in the accumulation phase and be taxed at 15%. They cannot be added to the pension account once it begins.

What happens if I don’t meet the minimum pension payment requirements?

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Failing to meet the minimum drawdown requirements can result in the ATO treating your pension as accumulation, losing tax-free status on earnings.

  • Can I continue working after starting a pension?

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  • Yes, especially under a Transition to Retirement Income Stream (TRIS).

Get in Touch

Ready to take control of your retirement savings with a Self Managed Super Fund?  

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Contact HelloLedger today for expert SMSF services. Together, we’ll pave the way for a secure and prosperous retirement. Say Hello to strategic superannuation management and Goodbye to worry!

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