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Account Based Pension

An account based pension (APB) is essentially an income stream that you receive from your SMSF account. It is available to members that have reached their preservation age and have retired and to members aged 65 or over whether retired or not.

An ABP has the following characteristics:

  • You must pay a minimum amount at least annually
  • You can withdraw lump sums any time you wish
  • There are no maximum draw-down limits for pensions commencing after 19 September 2007, except for transition-to-retirement income streams.
  • You cannot increase the capital supporting the pension using contributions or rollover amounts once the pension has started. (However, you can stop a pension, i.e. roll back to accumulation, add money to that balance, and re-start a new pension.)
  •  A pension being paid to a member who dies can only be transferred to a dependant beneficiary of that member.

ABP Tax Concessions
An ABP is the perfect investment vehicle to access your super benefits from a taxation point of view as shown in the following table.

 
Tax Treatment
Account Based Pension
Aged 55 to 59
Aged 60 or Over
Investment earnings in the fund
Tax Free
Tax Free
Capital growth of investments in the fund
Tax Free
Tax Free
Pension benefits paid to members of the fund
see Note 1 below
Tax Free
Lump sum benefits paid to members of the fund
  see Tax on lump sums
Tax Free
 
Note 1:  The tax treatment of pension benefits paid to members of the fund aged 55 to 59 will vary according to the tax-free and taxable components. The tax-free component consists of undeducted contributions, post 1994 invalidity, CGT exempt, pre-July 1983, and any after-tax contributions made from 1 July 2007. No tax is payable on income drawn from these components. The taxable component is the total pension benefit paid less the tax-free component of the benefit. This component is taxable at your personal tax rate, less 15% pension offset.

What if one Member commences a Pension and another Member remains in Accumulation Mode?
Each member’s superannuation benefits are accounted for separately. Therefore, if there are 2 members, one member can commence a pension while the other member remains in accumulation mode. In this situation the second member’s share of the Fund still attracts tax at 15%.

Should I commence an ABP?
An ABP is the most tax effective method of accessing your super upon retirement. If you do not commence an ABP you can access your super in the form of lump sum withdrawals, however your super’s investment earnings and capital growth will continue to be taxed at 15% per year. Therefore, any member that is retired and wants to access their super should commence an ABP.

ABP Setup
JustSMSF can setup an account based pension on your behalf. An ABP is appropriate if you have reached your preservation age and retired or aged over 65 and still working. Please contact us to discuss.