Is it compulsory to start an income stream (pension) when I retire?

You benefits may remain in accumulation phase in the SMSF. It is not compulsory to start an income stream (pension). After you satisfy a condition of release, such as reached your preservation age and retired, or you are aged 65 years or over, your benefits will no longer be preserved, and you can be paid your benefits at any time. You can be paid any amount, at any time, until your super benefits in the SMSF is exhausted.

How often can I be paid a lump sum from my SMSF?

There is no limit on the frequency of payment of lump sum benefits by the SMSF to the member. You can be paid lump sums until your superannuation account balance is exhausted.

If you are considering drawing down on your money in your SMSF, there is taxation benefits in commencing an income stream (pension). See Taxation.

How do I commence an income stream (pension) in my SMSF?

The commencement of an income stream (pension) should be appropriately documented. See Starting an income stream.

See also Questions and answers specific to commencing of an income stream (pension).

What type of income stream (pension) can I commence in SMSF?

The type of income stream (pension) that can be commenced in a SMSF is an account-based pension. An account-based pension is an income stream paid from a super account held in the member’s name until the account balance is exhausted.

Is there a requirement to pay recurring income stream (pension) payment at set intervals?

You may set a recurring income stream (pension) to be paid to you at set intervals. However, you can also vary the amount and frequency during the financial year as long as the minimum amount is met (and not exceed the maximum amount for a transition to retirement pension) for that financial year.

What happens if the minimum amount of income stream (pension) payment is not paid by the SMSF to the member?

If the minimum amount of income stream (pension) payment is not paid by the SMSF to the member, the income stream (pension) account will be taken to have ceased from the beginning of that financial year. Any amounts paid will be treated as lump sum payments. In this situation, the SMSF is not entitled to claim exemption from income tax as the income stream (pension) account ceased from the beginning of the financial year.

Note that actual cash payment must be made, and that any shortfall cannot be accrued at year-end.

When is an income stream (pension) payment paid?

The below are the time when the ATO consider the income stream (pension) payment to have been made:

Electronic transfer of funds to the member – the pension payment is considered made when the funds are credited to the member’s account.
By cheque given to the member – the pension payment is considered made when the member receives the cheque (so long as the cheque is promptly presented and is honoured). Promptly presented means within a few business days.

Trustees are expected to ensure all pension payments are made prior to 30 June, and consider the time it takes for the pension to be made, including weekends and public holidays. Especially when 30 June falls on a weekend.

Can SMSF pay benefits in-specie?

Instead of paying superannuation benefits in cash, the SMSF can make payment by way of an asset transfer, known as in-specie payment. An in-specie payment is lump sum benefits payment.

The asset must be transferred at market value. The rules require the market value of certain assets to be transferred to be determined by an independent qualified valuer.

Capital gains tax (CGT) applies to the SMSF on the transfer of the asset to the member as it is treated as a disposal of an asset by the SMSF.

Can income stream (pension) payment be made in-specie?

An in-specie payment is lump sum benefits payment, and cannot be a pension payment. It will not count towards the minimum annual amount.

Can I stop an income stream (pension)?

You can stop (commute) an account-based pension at any time after the SMSF has paid you at least the pro-rata minimum annual amount. The commuted amount will be held in an accumulation account in the SMSF.

Legacy pensions may not be as flexible.

What is a death benefits nomination?

A member's benefits is paid to beneficiaries upon the member's death by the trustee of the SMSF. A death benefits nomination is a document that allows the member to advise the trustee of the SMSF of who is to receive the member's benefit in the event of death.

To override the trustee's discretion, a member may provide a binding nomination (if the trust deed of the SMSF allows). Contact us if you need help with your trust deed or binding nominations.