With less than two weeks until the end of yet another financial year, it’s important for SMSF members which have Account Based Pensions (ABPs) to double-check they are on track to meet their annual minimum pension obligations. Ensuring compliance with these requirements is essential to avoid potential penalties and to maximise the benefits of your pension strategy.
Furthermore, Friday 28 June 2024 is the date in which all pension payments need to be made – after that, your SMSF could be in breach of compliance and tax obligations.
What is my minimum pension requirement?
The minimum percentage will depend on your age as at 1 July 2023:
| Age as at 1 July 2023 | Percentage of account balance |
| Under 65 | 4% |
| 65 – 74 | 5% |
| 75 – 79 | 6% |
| 80 – 84 | 7% |
| 85 – 89 | 9% |
| 90 – 94 | 11% |
| 95 or more | 14% |
Can I make just the one pension payment?
Yes, you can make a single payment as long as that one payment meets your minimum pension percentage then that satisfies the requirements.
Double-check regular pension payments from the SMSF bank account
If you’ve setup regular direct debits from the SMSF’s bank account for your pension payments its worth double-checking:
- Verify when your last payment is scheduled to be paid
- Check if a payment is scheduled for Saturday 29 or Sunday 30 June 2024, will your bank be processing them on Monday 1 July 2024? (see below)
- Will the total of your pension payments meet the minimum percentage noting that the 50% reduction due to Covid 19 no longer applies.
Does my pension payment have to be taken in cash?
Yes, pension payments must be withdrawn as cash from the SMSF; in-specie payments (eg. transfers of fund investments) are not permitted.
Furthermore, the total minimum pension must be met before midnight on Friday 28 June 2024. So, if you’re planning on making an Electronic Funds Transfer on 28 June and it only shows up on the bank account on Monday 1 July, the general rule is that this is not counted as a pension payment for the 2024FY. Even making the transfer on 28 June 2024 might be cutting it fine as it all comes down to how long the banks will take to process the transaction.
Are there any penalties for not taking the minimum pension payment?
Yes, and this will depend on how much of the minimum pension was not met by 30 June.
If you fail to meet the minimum pension payment requirements the 2024 financial year, then the pension effectively ceases with effective date of 1 July 2023 for Exempt Current Pension Income (ECPI) purposes. That is, the fund will be paying up to 15% tax on the earnings on that pension where the minimum pension was not met. Any payments made during the year will be deemed lump sum payments instead of pension payments.
However there maybe limited circumstances in which the ATO Commissioner may allow the pension to continue if all the following conditions are met:
- You did not pay the minimum pension amount in that income year because:
- an honest mistake resulted in a small underpayment, or
- there were matters outside of your control.
- If the income stream was in the retirement phase, the ECPI exemption would have continued if you had made the minimum payment.
- When you became aware the minimum payment was not made, you:
- made a catch-up payment as soon as practicable in the current income year, or
- treated a payment made in the current income year as being made in that prior income year.
- If you had made the catch-up payment in the prior income year, the minimum pension standards would have been met.
- You treat the catch-up payment, for all other purposes, as if it were made in the prior income year.
Conclusion
It is important to double-check the pension amounts paid from the SMSF to-date and ensure that any top-up pension payments are made with plenty of time to spare, in the lead up to EOFY.
Author: Anna Wong – Senior SMSF Manager at Premier SMSF Solutions
*Correct as of 19 June 2024
*Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
