Key takeaways
- An account-based pension turns your super into a regular retirement income.
- You can start one after meeting a condition of release, usually retiring after preservation age.
- A minimum amount must be drawn each year, set as a percentage that rises with age.
- Earnings on assets supporting a retirement pension are generally tax-free in the fund.
A pension is how your SMSF pays you in retirement. The most common type is an account-based pension: your super balance stays invested, and the fund pays you a regular income from it. It is the destination most members are building towards.
When you can start a pension
You can start a retirement-phase pension once you meet a condition of release. The usual triggers are retiring after reaching your preservation age (now 60 for everyone born from 1 July 1964), or turning 65 whether or not you have retired. Before then, only a limited transition-to-retirement pension is available. See TTR pensions.
The minimum you must draw
Once a pension starts, the fund must pay you at least a minimum amount each year, calculated as a percentage of your pension balance. The percentage rises with age, for example a lower rate in your sixties stepping up through your seventies, eighties and beyond. The standard minimum factors are:
| Age | Standard minimum drawdown |
|---|---|
| Under 65 | 4% |
| 65 to 74 | 5% |
| 75 to 79 | 6% |
| 80 to 84 | 7% |
| 85 to 89 | 9% |
| 90 to 94 | 11% |
| 95 and over | 14% |
The government has at times halved these minimums temporarily, so confirm the current rate before setting payments. The minimum must be paid by 30 June each year, or the fund can lose its tax exemption on the pension assets.
How pensions are taxed
Earnings on the assets supporting a retirement-phase pension are generally exempt from tax in the fund, which is the major attraction of moving to pension phase. For members aged 60 and over, the pension payments themselves are generally tax-free in your hands. How much you can move into this tax-free phase is limited by the transfer balance cap.
Frequently asked questions
- When can I start an SMSF pension?
- Once you meet a condition of release, most commonly retiring after your preservation age (now 60), or turning 65. Before that, only a limited transition-to-retirement income stream is available.
- Do I have to take a minimum pension each year?
- Yes. The fund must pay you at least the minimum, a percentage of your balance that rises with age, by 30 June each year. Failing to meet it can cost the fund its tax exemption on the pension assets for the year.
- Are SMSF pension payments taxed?
- For members aged 60 and over, account-based pension payments are generally tax-free, and earnings on the supporting assets are generally exempt in the fund. Different rules can apply below age 60.
