Questions & Answers – Establishing a Pension

When you reach Preservation Age you have the option of commencing a Pension Income Stream from your SMSF. A Pension means that periodically (e.g. each month or other period you nominate) cash is transferred from your SMSF Bank Account to your personal Bank Account to fund your living expenses. There are two types of Pensions you can commence in an SMSF as follows:

Preservation Age

Generally, you must reach preservation age before you can access your super. Use the following table to work out your preservation age.

Simple Account Based Pension:

A Simple Account Based Pension (SABP) is an income stream that you receive from your SMSF when you reach age 65 or alternatively when you are aged between Preservation Age and 64 and "Retired".

Transition to Retirement Pension:

A Transition to Retirement Pension is an income stream that you commence in your SMSF when you are aged between Preservation Age and 64 and NOT "Retired". It is also known as a TRIS/TRAP.

For more information on commencing a Pension, please click here.

The definition of "Retirement" varies depending on when you cease work.

If you cease employment after age 60, "Retirement" means you cease your employment. In this case the intention to return to the workforce is irrelevant. This means that you can essentially return to work soon after ceasing your employment after age 60, but you will still deemed to be retired and able to commence a Simple Account Based Pension. The definition of retirement in this case is less stringent than for those under 60.

If you cease employment between Preservation Age and 59, "Retirement" means that at the time you ceased employment you never intended to work again either on a full-time or part-time basis (defined as more than 10 hours per week). This declaration must be made to your SMSF and is made at the time you cease employment. It is noted that whilst a person who ceases employment when aged between Preservation Age and 59 never intends to work again, they may ultimately do so. This will not alter the person's status of being retired enabling them to have access to their Super Benefit notwithstanding they have returned to work.

The main benefit of commencing an SABP in your SMSF is that earnings from assets supporting the SABP are tax-exempt (subject to the Transfer Balance Cap). Consider the benefits when you commence an SABP from your SMSF:

• You never pay tax on your investment earnings & realised capital gains in the SABP account (e.g. interest and dividends).
• You can access any level of income from your SMSF subject to an aged based minimum amount.
• The Pension income you access is tax free if you are aged above 60.
• The Pension income you access is concessionally taxed if you are aged between Preservation Age and 59.
• You do not have to change your SMSF Investments when you start a Pension.

For more information on SABP, please click here

From 01 July 2017 earnings from assets supporting the TRIS become taxable. If you commence a TRIS you are able to access super benefits from the SMSF (subject to the annual Minimum and Maximum requirements) to meet your living expenses while you are still working.

For more information on TRIS, please click here

Essentially there are three main differences between an SABP and a TRIS. Firstly an SABP is commenced when you are aged over 65 or alternatively when you retire and are aged between Preservation Age and 64. A TRIS is commenced when you are NOT Retired and are aged between Preservation Age and 64. Secondly with an SABP you can cash out lump sums whenever you like. With a TRIS you cannot cash out lump sums and can only take a pension stream (up to a maximum of 10% of the pension balance). If you have commenced a TRIS and subsequently satisfied a condition of release with a nil cashing restriction (e.g. retirement/permanent incapacity/terminal illness and notified the trustees or reached age 65), your TRIS enters the retirement phase (R-TRIS). Then you can cash out lump sums.

Thirdly, from 01 July 2017, tax on earnings from assets supporting SABP and TRIS is treated differently as a result of the Super Reforms. Earnings on assets supporting TRIS become taxable from 01 July 2017.

For more information on SABP, please click here.

For more information on TRIS, please click here.

If you are over 65 or you are aged between Preservation Age and 64 and are "Retired" you can only commence a Simple Account Based Pension. If you are aged between Preservation Age and 64 and are NOT "Retired" then you can only commence a TRIS. Therefore in order to determine which Pension to commence the definition of "Retirement" is important and the definition will vary depending on when you cease work.

If you cease employment after age 60, "Retirement" means you cease your employment. In this case the intention to return to the workforce is irrelevant. This means that you can essentially return to work soon after ceasing your employment after age 60, but you will still deemed to be retired and able to commence a Pension. The definition of retirement in this case is less stringent than for those under 60.

If you cease employment between Preservation Age and 59, "Retirement" means that at the time you ceased employment you never intended to work again either on a full-time or part-time basis (defined as more than 10 hours per week). This declaration must be made to your SMSF and is made at the time you cease employment. It is noted that whilst a person who ceases employment when aged between Preservation Age and 59 never intends to work again, they may ultimately do so. This will not alter the person's status of being retired enabling them to have access to their Super Benefit notwithstanding they have returned to work.

If you are aged over 65 or aged between Preservation Age and 64 and "Retired" you can commence an SABP at any time. To apply click here.

If you are aged between Preservation Age and 64 and NOT "Retired" you can commence a TRIS only. To apply click here.

Yes. You can Rollover a Pension from another Superfund using the standard Rollover Process that can be found here. When you Rollover a Pension from the existing Superfund that Pension will cease. The amount that is Rolled Over will be allocated to the Member's "Accumulation" Account. The Member can in turn recommence a Pension at that time in the SMSF by completing our online Pension Application here.

If you qualify to commence a Pension you can nominate a Pension Commencement Date between 1 July of the current financial year and today's date. The date nominated will be the Pension Commencement Date.

When you are ready to commence a Pension, ESUPERFUND will attend to all aspects of the setup process for you. To establish a Pension determine which Pension applies to you and click below to apply:

• If you are aged over 65 or you are aged between Preservation Age and 64 and are "Retired", you have the option to commence an SABP. To apply click here.
• If you are aged between Preservation Age and 64 and NOT "Retired" you have the option to commence a TRIS. To apply click here.

In order to commence an SABP or a TRIS you need to provide the Market Value of your SMSF at the Pension commencement date. This means that you can only apply to establish an SABP or a TRIS after the intended setup date as this is the only way you can know what the Market Value of the SMSF is at the date of commencement. The documentation provided to you will be dated the date you want to commence the SABP or TRIS.

Example:

Assume you want to commence an SABP or a TRIS on 1 July 2023. This means that you should complete our Online Pension Application Form sometime after this date. There is no set timeframe after the intended date you should Apply Online, however it should generally be within 30 days. Assuming you apply on say 10 July 2023, all documentation will be sent to you after this date, but it will be dated 1 July 2023 as this was your intended start date. This ensures that you do not lose any valuable taxation savings.

There is no additional cost to establish a Pension with ESUPERFUND. You should obtain your own independent financial and taxation advice about whether commencing a pension is appropriate to your circumstances.

When you commence an SABP or a TRIS in your SMSF there are a range of additional compliance requirements necessary each year. These additional compliance requirements are all attended to by ESUPERFUND. The additional compliance requirements are attended to by ESUPERFUND at no additional cost. Only our standard annual compliance fee is payable. You should obtain your own independent financial and taxation advice about whether commencing a pension is appropriate to your circumstances.

When you submit a Pension application online with ESUPERFUND you are required to nominate a Pension Commencement Date between 1 July of the current financial year and today's date. The date nominated will be the Pension Commencement Date.

You can expect to receive the Pension documentation for signing within 5 working days of making the Pension application if no further information is required from you.

No. Nothing changes when you commence a Pension. That is your investments stay as they are. All that happens is that you execute documentation declaring that you wish to commence accessing your super as an income stream. The documentation is prepared for you when you are ready to commence your Pension. For example if your SMSF owns Cash and Shares, when you commence the SABP or TRIS these assets stay as they are. You do not need to sell the Shares or transfer the Cash to another account in the above example. The documentation prepared and signed by you is all that is required to evidence that the SABP or TRIS commenced. From your perspective you will not notice anything different about your SMSF. That is your SMSF Bank Account and Investments will be exactly as they were before commencing the SABP or TRIS.

If you make rollovers or contributions to your SMSF after commencing a Pension these amounts will sit outside the "Pension Account" in the "Accumulation Account". This means that earnings on this part of your Super Benefit will continue to be subject to tax. You should obtain your own independent financial advice about whether it is more appropriate to commence a second SABP with your “Accumulation Account” balance if you have remaining cap space in the Transfer Balance Account.