Pensions – More on the Basics in Self-Managed Super

Pensions – More on the Basics
Pensions – More on the Basics

We wrote about some basics in July HERE.

There are other aspects to know –

Certain payments cannot be used to boost a member’s pension

Once a pension has begun to be paid to the member, you cannot accept or add further amounts to the capital from which the pension is being paid. This means the member’s pension account cannot be increased by contributions or rollover amounts.

Transfer of pension

If a member dies, the pension can only be transferred or paid to a person who is a dependant of the member, which includes:

  • A surviving spouse or de facto spouse 
  • A child of the deceased who is under 18 years old
  • A child of the deceased aged between 18 years and 25 years old who was financially dependant on the deceased
  • A child of the deceased aged 18 years old or over, who has a permanent disability
  • Any person who relied on the deceased for financial maintenance at the time of their death
  • Any person who lived with the deceased in a close personal relationship where one or both of them provided financial and domestic support and personal care.

Capital value of pension cannot be used as security for borrowings

When applying for loans, members cannot use the capital value of the pension or the income from it as security for a borrowing.


Transition-to-retirement pensions commencing on or after 1 July 2007 must also satisfy the minimum pension standards as well as the additional requirement that pension payments must be restricted to a maximum of 10% of the pension account balance as it stands at 1 July of each financial year or the commencement day of the pension.

Furthermore, the rules regarding the non-commutability of transition-to-retirement pensions remain unchanged.

Pensions that commenced before 1 July 2007 and complied with the transition-to-retirement rules at the time are deemed to satisfy the new requirements and may continue to be paid under the former rules.

For more information, refer to Transition to retirement.

Why do you need to meet the minimum pension standards?

All pensions that satisfy the minimum standards will be classed as super income stream benefits for income tax purposes. This means the fund may be able to claim an exemption for the income earned on pension assets. This is referred to as exempt current pension income (ECPI). If the minimum pension standards are not met the payments will not be treated as super income stream benefits. This may result in income tax consequences for the fund, including that income earned on pension assets will not be exempt from income tax.

There may be limited circumstances that warrant the exercise of the Commissioner’s general administrative powers to allow an SMSF to continue to claim ECPI even though the minimum pension standards have not been met. We have published a Q&A on our website to highlight the conditions that would need to be satisfied to allow a fund to continue to claim ECPI. This Q&A is specifically for trustees of SMSFs.For more information, refer to Self-managed superannuation funds – starting and stopping a superannuation income stream (pension)

Members will be entitled to tax concessions on benefits paid from the taxed element of the super income stream, including a 15% tax offset if the member is between preservation age and 60 years old. For members aged 60 years or older, benefits paid from the taxed element of the super income stream will be tax free.

For more information, refer to Key factors that affect how your super payout is taxed.

Trustees need to ensure that the tax-free and taxable components of each income stream benefit are correctly determined to enable the fund to meet its PAYG withholding obligations.

For further information, refer to Calculating the components of a super benefit (NAT 71111) and Schedule 34 – tax table for superannuation income streams (NAT 70982).

What do I need to check?

As an SMSF trustee, check your fund trust deed is correctly written, so that it meets the minimum pension standards. For more information on how to do this, talk to your legal adviser.

Record keeping

Also ensure that the fund’s meeting minutes record that a member has:

  • Requested to commence a pension (or they can send a letter to the trustees, making a request)
  • Met a condition of release
  • Minute where the trustees note the request and that they have considered it and agreed.

For more examples and more details, see the ATO site HERE

Interested to know what self-managed super (SMSF) is all about, how to get setup FREE and if it is for you? We have FREE seminars and bonuses every month Self Managed Super Fund Roadmap (all you need to know) for the next monthly event, see 1 SMSF – FREE Seminars or call us 0407 361 596


About SuperBenefitnews

Self-Managed Superannuation Service Providers in Australia. SuperBenefit provides a wholistic SMSF assistance, education and administration service continuum - 1. “assistance” is help of whatsoever nature where our overall SMSF experience and knowledge enables us to provide assistance/help without any legal (or “license”) limitations. 2. “education” involves providing knowledge through teaching, coaching and mentoring about all matters SMSF, including (but not limited to) investment issues such as equities and property, 3. “administration” encompasses all admin aspects of legally required SMSF trustee and member record keeping including (but not limited to) audit and ATO matters. In keeping with our key point that SuperBenefit does not provide Financial Advice, where issues arise from 1, 2, and/or 3 above Indicate a need for a legally authorized provider (such as a Financial Adviser) and the client does not have their own service provider, the client can utilize SuperBenefit’s ‘Connect Assist’ … SuperBenefit, in itself, does not provide Financial Advice, but it does provide the wherewithal for great SMSF service. WE do not provide Financial Advice or any other service that requires a legally authorized provider. However, where such advice or service is required we have our ‘Connect Assist’, a SuperBenefit resource we use to connect clients to a Licensed Advisor or other legally authorised service provider. Call us 0407 361 596, no obligation FREE Connection call to see how we can help you!
This entry was posted in 2 Past Newsletter Topics, Pensions / Income Streams, Retirement Planning, Superannuation General and tagged , , , , . Bookmark the permalink.

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