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Pension income streams within an SMSF

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An income stream from your self-managed super fund ensures regular, flexible and tax-effective income as a pensioner. These streams can be received as a series of benefit payments from your SMSF.

Income streams from an SMSF are usually account-based, which means that the amount allocated to the pension comes directly from a member’s account. Once an account-based pension commences, there is an ongoing requirement for the trustees of the superannuation fund to ensure the pension standards and laws are met.

A super income stream exists when:

  • A member is entitled to a series of payments that relate to each other.
  • The payments are periodic, whether paid annually or more frequently.
  • The payments are made over an identifiable period of time.

Minimum payment standards of the Superannuation Industry Supervision (SIS) Regulations must be met in order for SMSFs to pay income stream pensions.

These requirements are:

  • The minimum amount must be paid at least once a year.
  • Once the pension has started, the capital supporting the pension cannot be increased by using contributions or rollover amounts.
  • When a member dies, their pension can only be transferred to a dependent beneficiary if they have any.
  • The capital value of the pension or the income cannot be used as security for borrowing.
  • Before you completely change a pension, you must pay a minimum amount in certain circumstances.
  • Before you partially change a pension, you must make sure there are sufficient assets to pay the minimum amount.
  • Once they have satisfied these minimum standards, the pension will be treated as super income stream benefits for tax purposes. The funds may then be able to claim an exemption for the income earned on pension assets. This is known as an exempt current pension income (ECPI).

From the commencement of the income stream, there are a number of compliance obligations that need to be met. Records of the pensions starting value must be kept along with taxable elements, earnings from assets and any pension payments made. 

SMSF trustees may need to amend trust deeds to satisfy these requirements. For more information on how to do this, you should contact your financial adviser.

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