When a member of an SMSF meets specific conditions of release, they are eligible to start a pension using a portion or the entirety of their superannuation balance. This pension provides an income stream for the member, with a required minimum payment each financial year depending on the balance and age.
Before Beginning
Before beginning any income stream, it’s essential to review the fund’s trust deed to confirm that it allows the requested type of pension. Older deeds may not accommodate legislative changes and might restrict certain income streams now permitted by law. If needed, trustees can amend the trust deed to permit all allowable pension types.
Reporting requirements must also be met with the ATO or an Accountant. They will need to lodge the TBAR amount prior to 28 days following the end of the quarter.
Transfer Balance Account Cap (TBC)
The transfer balance account is a record of the net amounts an individual has transferred into the retirement phase to commence income streams (pensions), which are subject to the transfer balance cap.
The transfer balance cap (TBC) is the maximum amount of superannuation that can be transferred into the retirement phase to receive tax-free earnings on the invested funds. As of 1 July 2021, the general transfer balance cap is $1.9 million.
If an individual has previously used part of their transfer balance cap, their available cap for future transfers into the retirement phase is reduced. The best way to know your personal TBC is to log onto your myGov account.
What is a Condition of Release?
Superannuation access is contingent upon meeting a condition of release, with specific cashing restrictions potentially applying. These conditions often relate to significant life events. Once a member meets the condition of release, they can establish a pension and withdraw funds. These conditions include:
- Attaining preservation age (Transition to retirement)
- Retirement (after attaining preservation age)
- Ceasing gainful employment after age 60
- Reaching age 65
- Permanent incapacity
- Death (certain beneficiaries are entitled to receive a pension upon the member’s death)
If a member meets a condition of release but opts not to start a pension, they can keep their superannuation in the accumulation phase. However, to maintain concessional tax treatment, the trustees must ensure the fund meets the sole purpose test at all times.
