When failure to meet minimum pension standards comes at a cost

Paying BenefitsUnderstanding SMSFs

When failure to meet minimum pension standards comes at a cost

Written by Emma Partenza, SMSF Works,
SMSF Specialist Advisor (SSA)

May 2020


The primary tax concession for an SMSF that pays a retirement phase pension is the partial or potentially full exemption from fund income tax (15%) on eligible assessable income. However, this is put at risk where the minimum pension standards are not satisfied, as failing to pay the relevant minimum pension is a pre-requisite to the fund making the relevant claim for ‘Exempt Current Pension Income’ (ECPI).

Whilst the Government recently announced a temporary 50% reduction to the required minimum pension for certain pensions, for the financial years 30 June 2020 and 30 June 2021, the pre-requisite minimum pension requirement still applies.

Payment of a retirement phase pension to an SMSF member provides tax concessions, provided that the pension standards are met during a financial year.

Trustees must ensure at least the minimum required pension payment is made to the member on an annual basis (as either a one-off yearly payment or a series of payments over the financial year) for the retirement phase income stream to be eligible for the following tax concessions:

  • Earnings received from assets held to support retirement phase pensions are tax-exempt (fund can claim ECPI).
  • Pension payments are taxed as a superannuation income stream benefit payment (i.e. as a pension payment rather than a superannuation lump sum).

If you wish to keep your pension on foot, do not let it fail the requirements!

 Let’s look at a case study below  that shows what can go wrong when the minimum pension payment is not made to the member and the potentially disastrous implications it may cause.

Sorry, this content is reserved for members of our SMSF Connect community.

Please register for a free community account to view this content or login below.


If you are an existing member of SMSF Connect, please login below.

If you wish to learn more about joining the community, please click here.

Join the free community

Complete the form below to set up your free account and be regularly updated on SMSF and investing news and information.

  • Strength indicator

Content provided by: