Once an SMSF member starts an account based pension, the fund must pay them at least a minimum amount every financial year. Miss it, even by a small amount, and the fund can lose its tax exemption on the pension assets for the whole year. This guide explains the SMSF minimum pension payment rates, how the minimum is calculated, and the rules trustees get wrong most often.
Minimum pension rates by age
The minimum is a percentage of the pension account balance at 1 July (or at the start date for a new pension), based on the member’s age at that time. The rates below have applied since 1 July 2023, when the temporary COVID-era halving ended, and apply for 2026-27.
| Age at 1 July (or pension start date) | Minimum annual payment |
|---|---|
| Under 65 | 4% |
| 65 to 74 | 5% |
| 75 to 79 | 6% |
| 80 to 84 | 7% |
| 85 to 89 | 9% |
| 90 to 94 | 11% |
| 95 or older | 14% |
Example: a member aged 68 with a pension balance of $600,000 on 1 July 2026 must receive at least $30,000 (5%) by 30 June 2027. The minimum is rounded to the nearest $10. There is no maximum for an account based pension, although transition to retirement pensions are capped at 10% a year.
Pensions that start part way through the year
If a pension starts after 1 July, the minimum is pro-rated for the number of days remaining in the financial year, based on the balance on the start date. If the pension starts on or after 1 June, no payment is required for that financial year. This is why many pensions are commenced in June.
What counts as a pension payment
- Payments must be made in cash from the fund’s bank account to the member. A transfer of shares or property to the member (an in specie payment) does not count towards the minimum
- The money must leave the fund by 30 June. A payment dated 30 June that clears on 1 July belongs to the next year
- Lump sum withdrawals and partial commutations do not count towards the minimum
- Payments can be made weekly, monthly or in one amount, as long as the annual total is reached
What happens if the minimum is not paid
If the fund underpays, the pension is treated as having stopped at the start of the financial year. The fund loses its exempt current pension income for that year, so earnings on the pension assets are taxed at 15% instead of 0%, and the payments that were made are treated as lump sums. The pension has to be formally recommenced, which can also affect the member’s transfer balance cap position.
The ATO allows trustees to self-assess a small, honest shortfall and keep the pension going if the underpayment is no more than one-twelfth of the minimum, it was caused by an honest mistake or matters outside the trustees’ control, the shortfall is paid as soon as practicable in the following year, and the concession has not been used before. Anything outside those conditions needs a written request to the ATO.
Reporting the pension to the ATO
Starting a pension, commuting one or rolling it to another fund are transfer balance account events. All SMSFs must report them on a transfer balance account report (TBAR) within 28 days after the end of the quarter in which the event happened. The amount that can be moved into pension phase is limited by the member’s transfer balance cap, which is $2.1 million for pensions started on or after 1 July 2026. Ordinary pension payments do not need to be reported on a TBAR.
Common mistakes
- Using the wrong balance: the minimum is based on the 1 July balance, not the balance when the payment is made
- Using the wrong age: the age on 1 July sets the rate, even if the member has a birthday during the year that moves them into a higher band
- Forgetting a second pension: each pension account has its own minimum
- Paying the pension from a personal or business account and reimbursing the fund later
- Not having pension documents in place: the trustee minute, pension agreement and, where needed, an actuarial certificate
Frequently asked questions
Can I take more than the minimum?
Yes, for an account based pension there is no maximum. Payments are tax free for members aged 60 and over.
Does the fund need an actuarial certificate?
Only if the fund has both pension and accumulation balances at some point in the year and is not using the segregated method. If every member is in full pension phase for the whole year, no certificate is needed.
What if the fund does not have the cash?
The trustees must sell assets or arrange liquidity in time. The investment strategy is required to consider the fund’s ability to pay pensions, so a fund made up entirely of property with no cash buffer is a problem the auditor will raise.
SMSF pension administration in Melbourne
Kennedy Tax & Business Services calculates minimum pensions, prepares pension documentation and lodges TBARs as part of our SMSF accounting service, and we also provide independent SMSF audits for funds administered elsewhere. Contact our Footscray or Williams Landing office to discuss your fund.
This article is general information only and does not take into account your personal circumstances. Speak to a registered tax agent or licensed financial adviser before starting, changing or stopping a pension.
