If you are a trustee of a Self-Managed Super Fund (SMSF), it is your legal responsibility to ensure that members receiving an account-based pension are paid at least their minimum pension amount by 30 June each financial year. Missing or underpaying this requirement can result in significant tax consequences for the member and the fund.

How the Minimum Pension is Calculated
The minimum pension amount is determined by:
Account Balance × Percentage Factor

  • The account balance is measured on 1 July of each financial year (or the pension start date if it begins mid-year).
  • The percentage factor is set by legislation and depends on the member’s age on 1 July, with higher factors applying as the member ages.

Once a pension income stream has commenced, the minimum pension amount must be recalculated annually using these rules.

Meeting the Pension Standards
To comply with superannuation law and maintain concessional tax treatment:

  • Payments must be made at least once during each financial year.
  • The first pension payment must be made before the end of the financial year in which the pension commences.
  • The full minimum payment must be received by 30 June.
  • What Happens if You Don’t Meet the Standard?

Failure to meet the minimum pension requirements means:

  • The pension is deemed to have ceased from 1 July of that year for tax purposes.
  • Payments made during the year will be treated as superannuation lump sums, with different tax implications.
  • The fund will lose eligibility to claim Exempt Current Pension Income (ECPI) for that year and potentially subsequent years.
  • There may be transfer balance account impacts for the member.
  • Restarting the Pension

If the minimum payment standard is not met, the pension must be recommenced. This process involves:

  • Revaluing assets,
  • Recalculating the minimum pension payment,
  • Recalculating the taxable and tax-free components, and

Lodging updated transfer balance account reporting.

Key Takeaway

Trustees should carefully plan and monitor pension payments throughout the financial year to avoid unintended tax outcomes. Professional advice and accurate record-keeping are essential to ensure compliance.
At Dymond Foulds and Vaughan we can help plan, monitor and assist with all the above. Reach out if you have any questions.

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