For SMSF members which have Account Based Pensions (ABPs) they are required to withdraw their annual minimum pension no later than the end of each financial year. But have you ever wondered what are the ramifications if you don’t? Let’s take a look.
What is my minimum pension requirement?
The minimum percentage will depend on your age as at 1 July 2022:
|Percentage of account balance at 1 July 2022
|65 – 74
|75 – 79
|80 – 84
|85 – 89
|90 – 94
|95 or more
Can I make just the one pension payment?
Yes. As long as that one payment meets your minimum pension percentage then that satisfies the requirements.
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 Pension payments must be withdrawn as cash from the SMSF.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 30 June 2023. So, if you’re planning on making an Electronic Funds Transfer on 30 June and it only shows up on the bank account on Monday 3 July, the general rule is that this is not counted as a pension payment for the 2023FY. Even making the transfer on 28 June 2023 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. You are less likely to be penalised in the following examples:
- it was an honest mistake resulting in a small underpayment of less than one-twelfth of the minimum pension payment for that year;
- there were matters outside your control.
However, if you fall outside these scenarios, if you fail to meet the minimum pension payment requirements in the 2023 financial year, then for Exempt Current Pension Income (ECPI) purposes, the pension effectively ceases as at 1 July 2022. That is, where the minimum pension was not met, the fund will be paying up to 15% tax on the earnings on that pension during the 2023 financial year. Any payments made during the year will be deemed lump sum payments instead of pension payments. This penalty could become significant depending on the level of pension balance you have.
Therefore, in the lead up to another end of financial year it’s 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.
Author: Anna Wong – Senior SMSF Manager at Premier SMSF Solutions
*Correct as of 13 June 2023
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to 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 contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.