One of the best ways to ensure regular, flexible and tax-effective income as a pensioner is through an income stream from your SMSF. As a member, you can receive an income stream in a reoccurring series of benefit payments from your SMSF.
Income streams from an SMSF are usually account-based, which means that the amount allocated to the pension comes directly from a member’s account. Once an account-based pension commences, there is an ongoing requirement for the trustees of the superannuation fund to ensure the pension standards and laws are met.
Standards that must be met in order for SMSFs to pay income stream pensions are:
- The minimum amount must be paid at least once a year.
- Once the pension has started, the capital supporting the pension cannot be increased by using contributions or rollover amounts.
- When a member dies, their pension can only be transferred to a dependent beneficiary if they have any.
- The capital value of the pension or the income cannot be used as security for borrowing.
- Before you completely change a pension, you must pay a minimum amount in certain circumstances.
- Before you partially change a pension, you must make sure there are sufficient assets to pay the minimum amount.
Once they have satisfied these minimum standards, the pension will be treated as super income stream benefits for tax purposes. The funds may then be able to claim an exemption for the income earned on pension assets. This is known as an exempt current pension income (ECPI).
SMSF trustees may need to amend fund trust deeds to meet the minimum pension standards. For more information on how to do this, you should consult a legal adviser. Records must be kept of pension value at commencement, taxable elements of the pension at commencement, earnings from assets that support the pension and any pension payments made.