For SMSF trustees and retirees in pension phase, now is the time to review balances, minimum drawdowns, and compliance issues to ensure the fund remains eligible for tax concessions and avoids any last-minute pitfalls.
Below are the key pension-related considerations before financial year-end.
1. Minimum Pension Payments
To retain tax exemption on earnings within retirement phase pensions, the minimum pension must be paid by 30 June.
The minimum % depends on the member’s age and is calculated on the account balance as at 1 July 2024:
Age |
Minimum % Factor |
| Under 65 | 4% |
| 65-74 | 5% |
| 75-79 | 6% |
| 80-84 | 7% |
| 85-89 | 9% |
| 90-94 | 11% |
| 95+ | 14% |
If your SMSF client pays pensions as a lump sum at year-end, ensure bank transfers clear before 30 June.
2. Overdrawing above minimum pension amounts
Drawing more than the minimum is generally allowed but may not always be optimal. For those approaching transfer balance cap limits, excessive withdrawals could accelerate depletion of tax-exempt assets. Review whether excess payments should instead be classified as lump sums (if available) for better tax treatment.
3. Starting or commuting a pension before 30 June
Starting a pension before 30 June can shift investment earnings into tax-exempt territory for the current year.
However, ensure:
- The Minimum pension is pro-rated if starting mid-year
- Pension commencement documentation is completed correctly (executed, witnessed etc)
- Transfer Balance Cap is not exceeded ($1.9 million in 2024–25)
Conversely, commuting a pension (fully or partially) may impact the member’s Transfer Balance Account, especially if it’s rolled back to accumulation phase. Ensure documentation and timing are carefully managed.
4. Reviewing Transfer Balance Cap (TBC) compliance
All retirement phase pensions are subject to the $1.9 million Transfer Balance Cap (as at 2024–25). It’s essential to:
- Track events like pension commencements, commutations, and death benefit income streams
- Report events through the Transfer Balance Account Reporting (TBAR) obligations to the ATO.
- Ensure credits and debits to the Transfer Balance Account (TBA) are recorded accurately and timely
Mistakes or late reporting may trigger excess transfer balance tax or loss of earnings exemptions.
5. Consider investment strategy and cash flow
Reviewing your investment strategy regularly will be important to ensure there is sufficient liquidity for the payment of pensions annually. Not meeting the annual minimum requirement comes with tax consequences. Therefore, consulting with a registered financial advisor and ensuring your accountant and advisor work together in looking after your SMSF will achieve the best outcome.
6. Estate planning
As 30 June approaches, it’s a timely opportunity for individuals to review key estate planning considerations – particularly the treatment of superannuation death benefits. Ensuring that reversionary pension nominations are in place can provide certainty and streamline the transfer of income streams to a surviving spouse, while also offering potential tax and Transfer Balance Cap advantages. Members should also review binding death benefit nominations for currency and validity, especially as superannuation does not automatically form part of your estate. Clarifying intentions now can help avoid disputes later and ensure benefits are distributed inline with your wishes.
7. Document, document, document
Whether you’re adjusting pensions, making commutations, or confirming reversionary status, clear documentation is critical. ATO scrutiny is increasing around pension commencements and ECPI calculations.
Ensure:
- Minutes/resolutions are signed
- TBAR events are lodged if required
- Actuarial certificates (if needed) are obtained when preparing 2025 tax returns.
Final Thoughts
Proper pension planning can deliver significant tax savings and ensure compliance with superannuation laws. As with contributions, getting this right before 30 June is essential to avoid penalties, maximise tax-free income, and preserve valuable retirement savings strategies.
Need help calculating your minimum pension, managing transfer balance events, or reviewing your SMSF pension setup? Feel free to reach out.
