How Do You Start a Pension From Your SMSF?
Starting a pension from an SMSF requires checking your available Transfer Balance Cap, preparing the correct pension documents including a trustee resolution and pension agreement, and calculating the minimum pension payment for the year, which is pro-rated if the pension starts partway through the financial year.
What is the Transfer Balance Cap and why does it matter when starting a pension?
The Transfer Balance Cap limits how much can be moved into retirement phase across all of a person's superannuation funds combined. Exceeding the available cap results in an excess transfer balance and additional tax, requiring the excess to be commuted back out of retirement phase.
What documents are required to start an SMSF pension?
Commencing a pension generally requires a trustee resolution, a pension agreement or equivalent document, and member consent, all prepared and executed before the pension start date to support the fund's treatment of those assets as retirement phase.
How is the minimum pension payment calculated?
The minimum pension is a percentage of the account balance based on the member's age. If the pension starts partway through the financial year, the minimum for that year is calculated on a pro-rata basis reflecting the number of days remaining.
Do I need an actuarial certificate to start a pension?
If the SMSF has both accumulation and retirement phase interests and the assets aren't segregated for pension purposes, an actuarial certificate is generally required to determine the proportion of the SMSF's earnings that are tax exempt.
Frequently asked questions
What is the minimum pension I must withdraw each year?
It's a set percentage of the account balance based on age, ranging upward as the member gets older, and it needs to be paid by 30 June each year.
Can I start a pension mid-year?
Yes, but the minimum pension amount for that financial year needs to be calculated on a pro-rata basis. If you commence a pension on or after 1 June in a financial year, there is no minimum pension amount for that financial year.
What happens if I exceed my Transfer Balance Cap?
The excess amount needs to be commuted back out of retirement phase, and additional tax applies to the excess transfer balance earnings.
Planning to start a pension from your SMSF? Contact Lifetime SMSF on 1300 031 943 or visit lifetimesmsf.com.au to talk to a specialist.
This information is general and factual in nature. It is not financial product advice, legal advice or tax advice. Lifetime SMSF Pty Ltd is not licensed to provide financial product advice under the Corporations Act 2001. If you require personal advice, consult an appropriately licensed or authorised financial adviser.