- Superannuation has two stages: building retirement savings (accumulation) and spending them (retirement phase).
- An SMSF member can usually access their super once they reach preservation age and retire or when they turn 65.
- There are strict rules around starting a pension from an SMSF, including minimum payment requirements and limits on how much can be transferred into the retirement phase.
The superannuation system is designed to fund Australians' retirements, and SMSFs must operate solely for that purpose. But what does it mean when a person reaches a certain age and can get their hands on the super kept within an SMSF? Here's all SMSF trustees need to know about the retirement phase.
What does the retirement phase mean for SMSFs?
There are two superannuation phases: The accumulation phase and the retirement (or pension) phase. The accumulation phase is about building retirement wealth and the retirement phase is about spending it.
What is the accumulation phase?
The accumulation phase of superannuation is the first and typically the longest phase of a superannuation account or SMSF. It refers to the period in which you (and your fellow SMSF members) are making contributions to your super. You generally can’t touch any of the money in your super while it’s accumulating. Though, there are exceptions to this rule, such as if you use the First Home Super Saver (FHSS) scheme or access your super to pay for medical treatment.
What is the retirement or pension phase?
The second and final phase of the superannuation system is the retirement phase, often called the pension phase. This is when you can access your super, typically to pay yourself a pension (hence the original and now colloquial name).
But you don't have to choose between adding to your super or withdrawing from it. If you qualify, your super can be in the accumulation phase and retirement phase at the same time. The transition to retirement income stream (TRIS) can see workers reducing their hours and supplementing their income with their super.
When can I access a pension from my SMSF?
The money in your super - whether in an SMSF or not -is largely locked away until you retire and, as a result, you can’t usually touch it until you reach your 'preservation age' and retire or begin the TRIS process.
The exact age deemed your preservation age depends on your year of birth:
Date of birth | Preservation age |
|---|---|
Before 1 July 1960 | 55 |
1 July 1960 - 30 June 1961 | 56 |
1 July 1961 - 30 June 1962 | 57 |
1 July 1962 - 30 June 1963 | 58 |
1 July 1963 - 30 June 1964 | 59 |
From 1 July 1964 | 60 |
Source: ATO
There are actually a range of happenings that can allow you access to your super or see your SMSF begin paying a pension, including:
Reaching your preservation age and retiring or starting a transition to retirement
Reaching 65 years old, even without retiring
Permanent physical or mental incapacity
Terminal illness
Explaining the types of SMSF pensions available
There are two types of SMSF pension, based on your employment status:
Transition to retirement pension
A TRIS allows a person to reduce their workload and top up their income with a pension from their super. To commence a TRIS, a person must have reached preservation age. SMSFs don't have to offer TRISs to members, but one might choose to if its trust deed allows.
When one or more members are receiving a TRIS, the SMSF must pay out a minimum amount per year. It also can't pay out more than 10% of assets allocated to a particular member in a year.
Account-based pension
An account-based pension is a pension paid from an SMSF when a member reaches preservation age and retires or are aged 65 or over.
There are certain tax benefits associated with an account-based pension, with the following being tax-free if used to support a pension:
- Income earned by an SMSF
- Capital gains on assets owned by an SMSF
- Personal income tax on pension withdrawals
However, the transfer balance cap means an individual can only transfer up to a certain figure into the retirement phase account, allowing them to take advantage of these tax breaks. Amounts outside of this will generally remain in the accumulation phase where they're often taxed at 15%.
In financial year 2025-26, the transfer balance cap is $2 million.
Minimum pension payout requirements
When paying a pension, an SMSF is required to pay out a minimum amount each year based on the age of the member or members receiving said pension and the value of its assets. Find the indicative minimum pension payout amounts provided by the ATO in the table below, but note these aren't necessarily applicable to all funds:
| Age of pensioner | Minimum percentage of account balance payout (FY24 & onwards) |
|---|---|
| Under 65 | 4% |
| 65 to 74 | 5% |
| 75 to 79 | 6% |
| 80 to 84 | 7% |
| 85 to 89 | 9% |
| 90 to 94 | 11% |
| 95 or older | 14% |
Source: ATO
What's the process of starting an SMSF pension?
If you're looking at starting an SMSF pension, the process will typically look something like this:
Check eligibility
Ensure members seeking a pension are eligible for one is perhaps the most pertinent step.
Review the trust deed
You and any other trustees should review the trust deed to see whether it sets out any specific requirements with regard to paying out a pension. It may have certain processes or restrictions in place and these must be adhered to in order for the SMSF to be compliant.
Review member entitlements
To understand the minimum pension percentage required to be paid out each year, trustees need to find out what a member is entitled to in the SMSF. This will require trustees to get a valuation of all the assets in the fund.
Segregated vs unsegregated
If your SMSF is split into retirement phase and accumulation phase, trustees will be required to decide whether to segregate or unsegregate the fund's assets. If they decide the assets need to be unsegregated, they'll need to get an actuarial certificate annually to figure out tax obligations.
Review investment strategy
The trust deed will set out the investment strategy of an SMSF. Trustees need to review the investment strategy to ensure it can still achieve what it sets out while paying a pension.
Review tax obligations
SMSFs are a tax minefield and bringing a pension into the mix can complicate things further. There are numerous tax benefits associated with the move but consider seeing an accountant or tax specialist to ensure a fund is doing everything by the book.
Determine pension payments
Once a trustee has valued the assets in the fund they can figure out the minimum pension payments and ensure the pension payments requested are greater than this. From here, they'll need to keep reviewing assets, pension payments, and the frequency of these to ensure everything is in order.
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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| Promoted | Disclosure | ||||||||||
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