SMSFs in Pension Phase

To qualify for the zero per cent tax rate it is vital that SMSF members meet the minimum withdrawal requirement on their pension balance.

Example: 

John has a member balance of $500,000 in pension phase. His is 62 years old so his minimum withdrawal requirement – in a normal* financial year – is 4% or $20,000. Unless John withdraws the minimum, then his member balance will be treated as if it is still in the accumulation phase of super and any earnings for the year on those assets will be taxed at up to 15%.

* This is NOT a ‘normal’ financial year! Due to recent Covid-19 related share market falls, the Government has reduced the minimum annual payment requirements for account-based pensions by 50% for 2019/20 and 2020/21. So for John in the example above – he only needs to withdraw 2%, or $10,000, to meet the minimum withdrawal requirement in the current financial year.

The 50% reduction gives retirees the option to take less assets out of their pension balance. For those who have experienced losses in investment markets due to Covid-19, this will allow them to let their investments recover so their assets will last longer in supporting their income needs throughout retirement.

Our tip – if you are running a pension in your SMSF, you might want to contact your accountant to double-check your minimum withdrawal requirement before 30 June.

Let us know if you have any questions or require assistance with any last-minute super withdrawals.

For investors in retail account-based pensions (not SMSFs) the process is automatic, as the product provider automatically pays you a pension each year – based on the income option selected on the product application form.

Disclaimer: The information in this email is general advice only and has not taken into account your personal circumstances. Please seek personalised advice prior to implementing any additional contributions.

We specialise in customising strategic solutions across a range of financial services.

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