Pension Commencement

Essentially, there are two types of pension which can be commenced from a Self-Managed Superannuation Fund: a transition to retirement income stream which pays benefits before retirement once a client is aged between 55 and 64; and an account-based pension which pays benefits post-retirement.

Pension commencement in a Self-Managed Superannuation Fund is an increasingly attractive option for those nearing retirement since once a pension has been commenced, no tax is ever payable on the income of the Self-Managed Superannuation Fund, or its capital gains – a remarkable tax concession which makes a pension the ideal investment vehicle to hold assets.

Transition to Retirement Pension (TRAP)

Transition to retirement pensions allow people to receive their superannuation benefits as an income stream once they reach the age of 55, even as they continue to work. Pension payments are deducted from the Self-Managed Superannuation Funds’ account to help fund living expenses.

Account-based pension

Generally, an Account Based Pension is an income stream drawn from your Self-Managed Superannuation Fund after the age of 64 or at whatever time you officially retire from employment between the ages of 55 and 64. This option allows clients to receive superannuation benefits as an income stream rather than a lump sum.

Benefits of pension commencement from a Self-Managed Superannuation Fund:

  • No tax is payable on investments’ earnings (interest and dividends) in the SMSF
  • No tax is payable on your investments’ realised capital gains made by the SMSF
  • Capital gains accumulated prior to pension commencement will never be taxed if sold after the SMSF converts to a pension
  • Any pension income a client accesses is tax free if they’re over-60
  • Pension income is taxed at a concession rate for those between 55 and 59
  • After a pension has been commenced, members can still contribute to their SMSF
  • Commencing a pension in a SMSF is the ideal investment vehicle to hold assets
  • Clients are entitled to an annual cheque from the Australian Taxation Office equal to any franking credits received by the SMSF