SMSF: Discover What Happens When You Reach the Pension Phase

By Ava Brown, February 15, 2017

The superannuation pension phase is the final phase of the Self Managed Super Fund (SMSF). It is the part when you stop accumulating funds, and finally have the freedom to spend them however you choose. This stage of the SMSF process can also be called the withdrawing phase because you start receiving regular payments out of your total amount of savings.

superannuation pension

In order to qualify for the superannuation pension phase, you need to fulfil one or more conditions of release:

1. Reach the preservation age* and continue working
2. Permanently retire on or after reaching the preservation age
3. Reach 65 years of age (even if not yet retired)
4. Permanent incapacity

*The preservation age is different depending on the fact when you were born.

Your date of birth

Minimum age for getting your super benefits

After June 1964


1 July 1963 – 30 June 1964


1 July 1962 – 30 June 1963


1 July 1961 – 30 June 1962


1 July 1960 – 30 June 1961


Before 1 July 1960


After you meet the condition of release, the next step is to inform all the other trustees of your decision to kick start your pension by making a written request. Only then can the pension come into full effect.

When you move on from the accumulation to the superannuation pension phase, you are no longer required to pay taxes. Moreover, all the earnings from the fund’s capital are also tax-free. There are two ways you can access your savings. One way is to convert them in a form of regular income streams each month, quarter, or year. The amount you choose to receive is unlimited, however there is a minimum amount you have to withdraw in order to keep the tax-free status. As you can see, the minimum pension withdrawal increases over time. For example, when you reach the age of 80, your annual withdrawal must be a minimum of 7% of your total account balance. Alternatively, you can take part of the total balance as a lump sum payment and continue to receive the remaining part as a regular income stream.

How long your savings will last depends on the amount you withdraw each year and the returns of the investments you made with your pension assets. However, managing your savings can be quite tricky. Even if you haven’t been earning a lot of money, by the time you retire you will have accumulated quite an amount of funds. This will make you start thinking differently. As you grow older, you’ll notice you’re becoming more and more conservative with your cash. But it’s important not to be afraid of investing in shareholdings and property, because your savings will still have to last for a long time. The average lifespan of Aussies is increasing, and there is a 10% chance that you or your spouse will live up to the age of 104. Being broke and centenarian is a really bad combination, so invest, invest, invest.

There are a lot more specific rules regulating the pension phase process and they constantly keep changing. In order to make sure you are doing everything right and according to the law, it’s best to consult an experienced SMSF adviser. I wish you a happy and long retirement!