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What is a Pension?

Commencing a Pension

Commencing a pension from a SMSF requires a substantial amount of compliance documentation. With an increasing focus on compliance from the Australian Taxation Office it is imperative pensions are established correctly. To correctly set up a pension requires more than merely setting up a periodic payment from your self managed superannuation fund to a personal bank account for the pension payments. To commence a pension download the relevant Pension Order form from the 'Documents' section.

On receiving your completed pension set up form, we:

• Prepare minutes
• Convert accounting to pensions
• Centrelink schedule (If requested)
• Actuarial certificate (If applicable)
• Periodic payment form - Macquarie Cash Management Trust

Ongoing Management

It is important that the pension is monitored and reviewed on a regular basis. The ongoing operation of a pension paid from a SMSF will require liaison between the fund administrator, fund auditors, fund actuary, Australian Taxation Office, Centrelink/Department of Veterans Affairs and the fund Trustees.

If your SMSF is not receiving a daily administration service, it is highly likely your pension fund is not meeting the minimum statutory reporting obligations which may also affect any entitlements from Centrelink and DVA.

In addition to the normal aspects of operating a SMSF, for funds with pensions we perform these additional but vital functions:

• Annual review of pension payment and level
• Pension minutes
• Actuarial Certificates – if applicable
• PAYG statements (Not required for payments after age 60)
• Amendments to periodic payments for pensions

Preservation Age

When can superannuation be accessed? –

Benefits can be paid with no limit if the members benefits are Unrestricted Non Preserved, the member has therefore satisfied a condition of release. Attaining age 65 is an automatic condition of release. A member may leave their money in accumulation stage as long as they want however there may be tax advantages to starting a pension and this should be considered.

If a condition of release cannot be met, for members aged over 55 a benefit can be taken as a Transition to Retirement Income Stream without needing to achieve a condition of release. This has a limit of 10% maximum drawdown each year, based on the member balance at the start of each year in the pension account of the member. In the first year this would be 10% of the balance at commencement of the pension.

Preservation terms

Preserved benefits — generally, these are benefits which must be retained in the fund until the member’s preservation age is attained and a condition of release is achieved. If a person aged under 55 years of age terminates employment, their preserved benefits cannot be paid to them.

Restricted non-preserved benefits — generally, this is a benefit which, although not preserved, cannot be cashed until the member satisfies a condition of release (for example, termination of employment in an employer superannuation scheme).

Unrestricted non-preserved benefits — generally, this is a benefit which does not require the fulfillment of a condition of release, and may be paid upon demand by the member. An example of this type of benefit is one where the member has satisfied a condition of release and decided to keep the monies in the superannuation fund.

A persons preservation age depends on their date of birth, as set out in the following table: