Complying with pension drawdown requirements

At the start of each new financial year self-managed superannuation fund (SMSF) trustees will re-calculate the minimum pension payment requirements for each income stream. Members may desire an amount higher than the minimum pension and so it is important to consider how and when to make payments from the SMSF to ensure the minimum pension standards are met, transfer balance account reporting (TBAR) requirements are met, and tax efficiencies are considered.


The first step is to work out the minimum pension that must be paid by 30 June from each income stream in order to meet the minimum pension standards set out in Superannuation Industry (Supervision) Regulations (SISR) 1994. There can be serious consequences where the pension standards are not met, for example an account-based pension (ABP) that does not meet the pension standards will not be eligible to claim exempt current pension income (ECPI) in that year.

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For an existing ABP or transition to retirement income stream (TRIS) the minimum pension in 2019/20 is a percentage of the balance of the ABP at 1 July, 2019 based on the member’s age:

Minimum pension = % based on member age x 1 July balance

Example: Anna had $125,000 in a non-retirement phase TRIS at 1 July, 2019 and was aged 61, her minimum pension for 2019/20 is 4% of her 1 July balance = 0.04 x 125,000 = $5,000.

If an income stream is commenced or fully commuted during the year then the member must pay a pro-rated minimum pension based on the number of days in the year the pension was in existence. A partial commutation of an income stream does not lead to the minimum pension being re-calculated or pro-rated.

Example: if Anna’s pension commenced 30 September, 2019 on her 62nd birthday then her minimum pension would be $3,750 and this must be paid by midnight 30 June, 2020. Her minimum pension = 125,000 x 0.04 x 274/365 = 3,753 rounded to nearest $10.

Each individual income stream must meet the minimum pension standards and payments must be ‘cashed’ and paid out of the SMSF to the member. A partial commutation of an income stream does not count towards the minimum pension nor does a lump sum payment. This means an in-specie transfer (which is enacted by way of a partial commutation and lump sum payment) does not count towards the minimum pension. A lump sum payment or partial commutation will however raise a debit to the member’s transfer balance account and a TBAR needs to be completed.


On the death of a member where their income stream was not automatically reversionary the minimum pension does not need to be paid. However, if the benefit is paid as a death benefit income stream, a pro-rata payment must be paid prior to 30 June.

Example: Consider SMSF member Sam aged 80 had an ABP which was not automatically reversionary. He passed away on 4 August, 2019. His wife Serena joined the fund and commenced a death benefit income stream with the balance of $834,000 on 16 August. 
Sam’s ABP remains eligible for ECPI even if the minimum pension was not paid prior to his death. Serena was aged 78 and must make a payment of $43,750 prior to 30 June, 2020 to meet the pension standards.

Minimum pension = 834,000 x 0.06 x 320/366 = 43,751, rounded to nearest $10

Death benefits paid as an automatically reversionary income streams must pay a minimum pension. The minimum pension is not recalculated on death, and the sum of payments made prior to and after the member passes away count towards meeting the minimum pension.

Example: If Sam’s pension was automatically reversionary the minimum pension would be based on his age and balance at 1 July, 2019. Consider that his minimum pension had been determined at 1 July, 2019 to be $60,900 and Sam had already paid $40,000 in pension payments prior to passing away. In this case Serena must make a pension payment of $20,900 by year-end to satisfy the pension standards on the income stream that has reverted to her.

More useful information about how to meet the minimum pension standards can be found on the Australian Taxation Office’s (ATO’s) webpage ‘pension standards for self-managed super funds’.


There are several ways in which an SMSF trustee can make a payment to a member including:

1. Pension payment from an income stream

  • Must take at least the minimum pension requirement as a pension payment; and
  • No TBAR required.

2.  Lump sum payment from a retirement phase income stream

  • Can be in-specie or cash; and
  • Is a TBAR event and must be reported.

3.  Lump sum from an accumulation account

  • Can be in-specie or cash; and
  • No TBAR required.


If a member desires to draw more than the minimum pension from their SMSF in 2019/20 they must decide from which interest to make the additional payments. Some considerations are outlined below:

Each income stream must make a pension payment equal to the minimum pension amount; and

If a member has an accumulation interest, taking additional payments from that ahead of a retirement phase income stream may help increase ECPI; and

If a member takes additional payments from retirement phase, then reporting those under TBAR as a lump sum payment will reduce the member’s TBA increasing their remaining transfer balance cap.

If a member desires less than their full minimum pension, for example if it is currently more than they need to spend in a year, the trustee may consider the following trade-off:

  • Unless an income stream is commuted in full during 2019/20 the minimum pension is now locked in based on the calculation completed at 1 July and cannot be reduced;
  • Completing a partial commutation to accumulation phase on or prior to 30 June could reduce next year’s minimum pension, however;
  • This will create or add to an accumulation interest in the SMSF reducing ECPI in future years; and
  • The taxable component of the accumulation interest will increase with earnings which could impact tax payable on future death benefits to non-dependents.


A strategy that trustees can consider where they have retirement phase and non-retirement phase accounts is to maintain as high a proportion of the fund in retirement phase as possible, relative to the proportion in non-retirement phase, to maximise ECPI. The trustees could consider the following:

  • Draw pension payments and lump sums from retirement phase as late in a financial year as possible;
  • Draw payments from non-retirement phase accounts as early in a financial year as possible; and
  • This strategic timing of payments will be particularly effective for large one-off transactions.

Where a fund does not have disregarded small fund assets and has periods of deemed segregation the fund will use the segregated method for ECPI in those periods. In this scenario, the timing of pension payments or lump sums in the segregated periods will not impact ECPI, timing of payments in any other periods will be helpful in maximising ECPI claimed using the proportionate (unsegregated) method.


Tim and Kate (both aged 66) have all their superannuation in an SMSF and are retired. In 2019/20 they have:

  • 1 July, 2019 balances of $1,412,090 and $820,300 in retirement phase, Tim also has $3,045 in accumulation phase having been subject to the transfer balance cap at 1 July, 2017;
  • They would like to draw $75,000 from their SMSF over the year;
  • Also require an additional $65,000 this year to pay for their daughter’s wedding.
  • Based on this information payments totalling $140,000 are required. This includes minimum pensions of five per cent of the 1 July pension balances which is $70,600 for Tim and $41,020 for Kate, totalling $111,620.

The fund will not have disregarded small fund assets in 2019/20 as neither member had a total super balance in excess of $1.6 million just prior to the start of the financial year.

  • To maximise ECPI Tim and Kate considered the following:
  • Tim withdrew $3,085 as a lump sum payment from accumulation on 2 July, 2019 to draw this account to $0 as early in the year as possible;
  • The SMSF will be deemed as having segregated pension assets from 2 July, 2019 as the fund will be solely in retirement phase. The fund will claim ECPI using the segregated method for income earned between 2 July, 2019 and 30 June, 2020 (assuming no contributions are received later in the year);They must take $111,620 in pension payments over the year and decide to make regular payments to meet this requirement; and
  • They will take the remaining $25,295 in payments as pension lump sums once the pension standards have been met and will complete a TBAR for those payments within 28 days of the end of the quarter in which the payment occurred. 

Melanie Dunn is head of technical services at Accurium.

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