Lump sums and income streams from an SMSF
How much is my super benefit?
The amount of your super benefit depends on the circumstances in which it is paid. However, for most SMSF members it is the combined amount of concessional and non-concessional contributions plus investment earnings less any payments and expenses. The amount of some super benefits, such as death and disability benefits, will include the proceeds of an insurance policy.
What does a super benefit consist of?
Your super benefit may consist of a number of account balances in the fund. These can include your accumulation account and your income stream (pension) account(s). Each account will include contributions, transfers and rollovers from other funds plus net investment earnings less any benefit payments, fund expenses and taxes.
For tax purposes your accumulation and income stream accounts will have two components, a tax-free component and a taxable component. Your tax-free component will consist of the total of any non-concessional contributions made to the fund or rolled into the fund. Your taxable component is the remainder of your individual account.
The minimum amount that you could receive after specific events is equal to the amount in your individual account. From this amount will be deducted any exit charges.
When can my benefits be paid?
Benefits are payable from your SMSF when you meet a condition of release under the preservation rules. Generally, you can access your superannuation after you have met your preservation age and retired or once you are 65. Benefits may also be paid on your permanent incapacity, temporary invalidity and on your death. Your preservation age is between age 55 and 60 depending on your birthdate.
What type of benefits can be paid?
Once you have met a condition of release such as your preservation age, reached 65, died or become permanently disabled your superannuation benefit can be paid as a lump sum or an income stream. It is not compulsory to take your benefit once you have met a condition of release as you may wish to draw down your benefit later.
After you have reached your preservation age you may wish to commence a transition to retirement income stream (TRIS) which does not require you to retire. A TRIS allows you access to your preserved benefits and is subject to a minimum payment of 4% p.a. and a maximum cap equal to 10% of your account balance at commencement and each subsequent 30 June.
At your retirement after preservation age or when you reach 65 you can start an account based income stream which is subject to a minimum annual amount. It ceases when your account balance is nil.
What is an account based income stream?
An account-based income stream is a regular amount you withdraw from your income stream account each year. The income stream must meet the minimum payment requirements which depend on your age on commencement and at the beginning of each subsequent financial year.
These minimum income stream percentage and your age on 1 July are shown in the following table:
|Age at each 1 July||Minimum Factor|
|Under age 65||4%|
|95 or more||14%|
An account-based income stream ceases when your account balance is nil, which may occur before you die. At any point in time you may decide to roll part or all the balance back into accumulation in a separate individual account.
Since 1 July 2017 pensions that are in retirement phase (all pensions other than TRISs) are measured against a Transfer Balance Cap (TBC). This cap is initially equal to $1.6 million which is indexed to average weekly ordinary time earnings (AWOTE) and increases in $100,000 increments. Any amount over the TBC must either be rolled over to an accumulation account or withdrawn from superannuation.
On your death, your account based pension can revert to your spouse or tax dependent or for the balance of your individual account can be paid to your spouse or tax dependent as a pension or to your spouse or other dependent as a lump sum. Should your dependents die before you, the balance of your account will be payable to your Legal Personal Representative (LPR).
What is a transition to retirement income stream?
A transition to retirement income stream is a pension that can be paid once you reach your preservation age without having to retire. It allows you access to your preserved benefits but the amount you can withdraw each year is required to meet minimum and maximum payment limits.
The minimum amount you must take is at least 4% p.a. of your account balance, pro-rated daily in the year of commencement and re-calculated on your account balance as at 1 July in each subsequent year. the maximum amount you are permitted is equal to 10% of your opening account balance or your balance as at 1 July each year which is not pro-rated.
You can stop and start your TRIS as you wish and withdraw pension payments, but you are not able to withdraw the preserved component of your TRIS as a lump sum until you meet a condition of release. Conditions of release include your retirement, death, permanent incapacity or attaining age 65. Once you meet a condition of release your TRIS becomes a TRIS “in retirement phase”. This means that your TRIS will receive a tax exemption on earnings from investments used to support your TRIS. This is not available if your TRIS is “not in retirement phase” where the investment income is taxed at 15%.
Your TRIS ceases when your account balance is nil, which may occur before you die. You can decide to roll part or all of the balance back into accumulation phase at any time.