As you probably already know, the main purpose of an SMSF (Self-Managed Super Fund) is to provide its members (who are also its trustees) or their dependents with retirement benefits. Since the Smsf pension phase is the most important part of the whole journey, knowing the super pension rules and standards is a must. Read on to find out all the crucial details about account-based pensions.
When talking about the Smsf pension phase, what we’re actually talking about is superannuation account-based pension. According to ATO (the Australian Taxation Office), an account-based pension is where an account balance belongs to the member. This means that the amount of money supporting the pension must be allocated to a separate account for each SMSF member.
An account-based pension can be started when the member is retired, has reached the preservation age, or has reached 65 years of age. An account-based pension gives the SMSF member unlimited access to their superannuation benefits.
Every SMSF member should know that when they commence an account-based pension, they are legally obligated to withdraw a minimum amount every financial year. This is how a tax exemption for the investment earnings on the fund’s assets financing their superannuation income stream (pension) can be secured. Remember, a financial year doesn’t equal a calendar year. It runs from 1 July of one year through to 30 June of the following year.
The SMSF member’s age and the size of their account balance are the two key factors on which the minimum pension payment amount payable for the financial year is based on. The formula is: minimum payment = account balance x percentage factor. See the table below for percentages linked with different age categories.
| Age of Recipient | Percentage Factor (2013/14 Onwards) |
| Under 65 | 4% |
| 65 – 74 | 5% |
| 75 – 79 | 6% |
| 80 – 84 | 7% |
| 85 – 89 | 9% |
| 90 – 94 | 11% |
| 95 or more | 14% |
So, for example, if you’re 70 years old and have $1,000,000 in your superannuation account-based pension on 1 July 2017, your annual minimum pension payment will be $50,000 (1,000,000×5%=50,000). The annual minimum pension payment is calculated on 1 July each year, unless it’s the first year of the account-based pension. In that case, it’s pro-rated from the commencement day. If the commencement day of the pension is on or after 1 June of the financial year, no minimum payment is required for that financial year.
Remember, if you have a market-linked income stream (pension), the calculation for the annual minimum pension payment is different.