Once a condition of release has been met, the SMSF is able to pay benefits to a member as a pension.
There are two types of pensions that can be established in the SMSF:
- Account-based Pension – which will pay you a regular income. A minimum amount must be taken each year.
- A Transition to Retirement Pension (Accumulation Phase) – a retirement income stream that you can commence once you have reached preservation age (currently between 55 and 60, depending on when you were born) but have not ceased employment. These transition to retirement pensions have an account balance, much like an account-based pension, but have additional conditions that apply:
- you generally cannot make lump sum withdrawals;
- earning do not enjoy the tax-free status of pension phase, but instead are taxed at 15%; and,
- your pension income must be between 4%* and 10% of the account balance each year.
Please note: These conditions apply until another condition of release is met, such as reaching age 65. After this point, if retained, it is referred to as a transition to retirement pension (pension phase).
*Note: The Government is temporarily reducing minimum drawdown requirements for account-based pensions and similar retirement income stream products, including transition to retirement pensions, by 50% for the 2019–20 and 2020–21 financial years. Therefore the minimum pension income will fall to 2%.