How to Start a Pension Phase in Your SMSF
To start a pension phase in your SMSF, you must meet eligibility conditions and follow ATO compliance rules. This process allows trustees to access retirement income with generous tax benefits. At SMSF Depot, we guide Australian trustees in transitioning to the pension phase seamlessly and tax-effectively.
What Is the Pension Phase in an SMSF?
The pension phase begins when an SMSF member starts receiving income stream payments from their superannuation. During this phase, the income generated on pension assets is exempt from tax, making it a popular option for retirees.
Key Conditions to Start the Pension Phase
To start the pension phase, members must meet the following requirements:
Reach Preservation Age (between 55 and 60 depending on birth year)
Retire or meet another condition of release (such as turning 65)
Have a minimum account balance suitable for pension commencement
Read more about conditions of release – ATO
Types of SMSF Pensions
Account-Based Pension (ABP)
This is the most common SMSF pension. You receive regular payments, and earnings on the fund’s assets are tax-free.
Transition to Retirement Income Stream (TRIS)
This allows members to draw from super while still working, without full retirement, provided they have reached their preservation age.
Steps to Start a Pension Phase in Your SMSF
Update the SMSF Investment Strategy
Ensure the strategy supports pension payments and asset allocation.
Calculate Transfer Balance Cap
As of now, the transfer balance cap is $1.9 million per individual (check ATO for updates).
Prepare Required Documentation
Documentation includes:
✔ Trustee minutes
✔ Pension commencement letter
✔ Centre-link schedules (if applicable)
Lodge Transfer Balance Account Report (TBAR)
Notify the ATO of pension commencement via TBAR within the required time-frame.
Start Making Minimum Pension Payments
Ensure annual minimum payments are made based on age. These amounts are published by the ATO.
Tax Benefits of Pension Phase in SMSF
Earnings on pension assets are tax-free
No tax on pension withdrawals for individuals over 60
Helps in optimising overall retirement planning
Important SMSF Compliance Requirements
Continue annual SMSF audit and tax return filing
Maintain pension documentation
Review pension payments annually
Common Mistakes to Avoid
Failing to make minimum annual pension payments
Exceeding the transfer balance cap
Not reporting events to the ATO on time
Mixing pension and accumulation assets incorrectly
Professional SMSF Solutions with SMSF Depot
At SMSF Depot, we specialise in SMSF compliance, pension structuring, and ongoing support. Whether you’re looking to transition into the pension phase or optimise your superannuation strategy, our SMSF specialists are here to assist.