When you reach age 55 you have the option of commencing a pension from your SMSF.
• Nil tax on SMSF income
• Nil tax on SMSF capital gains
• Access to your SMSF cash
• Access to salary sacrifice strategies without being out of pocket.
• Your get back company tax paid by listed companies you have invested in (franking credits)
• Industry/Retail funds cannot continue to accept contributions once a pension has started, your SMSF can.
There are 2 categories of pensions;
1. Account Based Pension – An income stream that your receive from your SMSF when you reach age 65 or when you are aged between 55 and 64 and ‘retired.’
2. Transition to Retirement Pension (TTR) – An income stream that your receive from your SMSF when you are aged between 55 and 64 and NOT ‘retired.’
“Retirement” means that at the time you cease employment you intended to never 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 at the time you cease employment. A person who ceases employment when aged between 55 and 59 and never intends to work again still may ultimately do so.
Minimum Pension Income
The minimum pension amount you must withdraw is calculated as a percentage of your Super Balance based on your age as follows:
Age Range Minimum Pension Factor
55 – 64 4%
65 – 74 5%
75 – 79 6%
80 – 84 7%
85 – 89 9%
90 – 94 11%
Maximum Pension Income
With an Account Based Pension, there is no maximum amount you need to take. This means that you can take all your Super Benefits as and when desired, tax free.
With a TTR pension, the maximum annual pension drawdown is 10% of your balance.
Pension payments must be made from your SMSF to your personal bank account. 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 amount.
Not accessing the Minimum Pension Payment
If you don’t take your minimum pension payment for a particular financial year, then the tax free status of your share of SMSF earnings and any capital gains may be at risk. Therefore, you MUST make sure you take the minimum pension every financial year.
Contributions and Rollovers when in Pension Phase
You can continue to contribute to your SMSF and rollover monies to your SMSF once you commence a Pension.
• You can have multiple pensions and start them at any time
• You can cease a pension at any time
Taxation of Pensions
The tax position is as follows:
• when aged over 60 – there is no tax payable on pensions withdrawn
• when aged between 55 and 59 – tax maybe payable by you, however you do receive a 15% rebate
Lump Sum Withdrawals
A lump sum withdrawal is money accessed from your SMSF that is not a pension payment.
You can make lump sum withdrawals whenever you choose once:
• you turn 65; or
• are aged between 55 and 64 and “retired”
If you are aged between 55 and 64 and are NOT ‘retired’, you cannot make lump sum withdrawals.
Taxation of Lump Sum Withdrawals
The tax position is as follows:
• when aged over 60 – there is no tax payable on lump sum withdrawals
• when aged between 55 and 59 – the position is a little more complicated. Each member has a ‘Taxable’ and ‘Tax Free’ component (Super Initiatives tracks this for you). In this age bracket, 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 first $185,000 of your taxable component is tax free.
The next $185,000 of your taxable component is taxed at 17%
When a SMSF has a balance in both the pension and accumulation account at any point during the financial year, an Actuarial Certificate is required by law.
The actuarial certificate determines what percentage of the SMSF is in pension mode (and hence tax free) and what percentage of the SMSF was in accumulation mode and hence taxable.
An Actuarial Certificate must be prepared by a registered Actuary.
At Super Initiatives, we take care of this process for you.