The common popular pension for a SMSF nowadays is account based pension. Generally speaking all pensions that commence after 19 September 207 must meet the minimum pension standards. Please contact Superfund Works for information on other types of pension.
What are the minimum pension standards?
The minimum standards mean that the super pensions you pay must satisfy all of the following requirements:
- The pension must be account-based, except in limited circumstances.
- You must pay a minimum amount at least annually.
- You cannot increase the capital supporting the pension using contributions or rollover amounts once the pension has started.
- A pension being paid to a member who dies can only be transferred to a dependant beneficiary of that member.
- You cannot use the capital value of the pension or the income from it as security for borrowing.
- Before you can commute a pension, you must pay a minimum amount in certain circumstances.
There are no maximum draw-down limits for pensions commencing after 19 September 2007, except for transition-to-retirement income streams.
|‘Commutation’ is a term which generally means the process of converting a pension or annuity into a lump sum payment. This payment can be paid to the beneficiary or rolled over to another product within the same super fund or to another super fund.|
1 What is an account-based pension?
An account-based pension refers to a pension where an account balance is attributable to the member. That is, the amount supporting the pension must be allocated to a separate account for each member.
You must pay a minimum amount each year to a member from that member’s pension account.
2 How do I calculate the minimum annual payment?
The minimum amount is worked out by multiplying the member’s pension account balance by a percentage factor. The amount is rounded to the nearest 10 whole dollars.
The following table shows the relevant percentage factor based on the member’s age.
|In response to the downturn in global financial markets, the government provided pension drawdown relief in 2008-09, 2009-10 and 2010-11 by halving the minimum payment amounts. This relief has been extended in 2011-12 and 2012-13 by reducing the minimum payment amounts by 25 per cent. The minimum payment amount is expected to return to normal in 2013-14.|
|Age||Percentage of account balance|
|95 or more||14%||7%||10.5%|
‘Account balance’ means one of the following:
- the pension account balance on 1 July in the financial year in which the payment is made
- if the pension commenced during the financial year – the balance on the commencement day
- if the amount of the pension account balance is less than the withdrawal benefit that the member would be entitled to if the pension were to be fully commuted – the amount of the withdrawal benefit.
Where the pension commences after 1 July, the minimum payment amount for the first year is calculated proportionately to the number of days remaining in the financial year, starting from the commencement day.
That is, you multiply the minimum payment amount by the remaining number of days in the financial year divided by 365 (or 366 in a leap year):
Minimum payment amount = minimum payment amount x remaining number of days / 365 (or 366).
|If the pension commences on or after 1 June, no minimum payment is required to be made for that financial year.|
The minimum payment required for the 2007-08 financial year is $6,220 ($6,215 rounded up to the nearest $10).
4 Transfer of pension
If a member dies, the pension can only be transferred or paid to a person who is a dependant of the member, which includes: