Section 01

When can you access your super?

Before a pension can commence, a member must meet a condition of release. This determines not just when you can access your super, but what form that access can take.

Pensions are the biggest tax advantage in an SMSF - but only if the rules are followed. The three most common pension compliance failures are: missing the minimum drawdown, incorrect documentation at commencement, and exceeding the transfer balance cap. Each is covered in detail on this page.

PA

Preservation age

Preservation age is the earliest age at which a member can access their super. It determines when a transition to retirement pension becomes available.

For anyone born on or after 1 July 1964, preservation age is 60. For those born before this date:

Date of birth	Preservation age
Before 1 July 1960	55
1 July 1960 to 30 June 1961	56
1 July 1961 to 30 June 1962	57
1 July 1962 to 30 June 1963	58
1 July 1963 to 30 June 1964	59
On or after 1 July 1964	60

FC

Full conditions of release

A full condition of release allows unrestricted access to super as a pension, a lump sum, or both. The most common are:

Retirement: Ceasing an employment arrangement after reaching preservation age with no intention to return, OR ceasing any employment arrangement after turning 60
Turning 65: A full condition of release regardless of employment status - no retirement test required
Terminal medical condition: Two certificates from medical practitioners (at least one a specialist) confirming a terminal illness likely to result in death within 24 months
Permanent incapacity: Permanently unable to work in any occupation for which the member is reasonably qualified by education, training, or experience
Death: Benefits paid as a lump sum or death benefit pension to dependants or the estate

RC

Restricted conditions of release

Some conditions allow limited access only:

Transition to retirement (TTR): Reaching preservation age - allows an income stream with a maximum 10% drawdown per year. No lump sums permitted. Covered in full in Section 04.
Severe financial hardship: Limited to one lump sum between $1,000 and $10,000 in any 12-month period, subject to meeting specific ATO criteria
Compassionate grounds: Released only for specific purposes (medical expenses, preventing home foreclosure, palliative care, disability modifications). Requires ATO approval in advance.

▲ Why it matters

Commencing a pension before a condition of release has been met is a significant compliance breach. The ATO can require the pension to be unwound, which triggers complex tax consequences and may require the fund to repay pension payments already made. Always confirm which condition of release applies before commencing any pension.

Section 02

Account-based pensions

The account-based pension (ABP) is the most common pension structure in Australian SMSFs. It provides flexible, tax-effective income in retirement once a member has met a full condition of release.

HW

How an account-based pension works

When a member meets a full condition of release, they can roll some or all of their super balance into an account-based pension. Key features:

The pension account remains invested and continues to earn returns
Investment earnings on pension-phase assets are tax-free via ECPI (see Section 05)
A minimum amount must be withdrawn each year based on age (see Section 03)
There is no maximum withdrawal limit
Pension payments are tax-free for members aged 60 and over
For members aged 55-59, pension payments from a taxed source are taxed at marginal rates with a 15% tax offset

PD

Pension documents required

To commence a pension inside an SMSF, the following documentation must be in place before the first payment is made:

A written pension agreement between the member and the fund
A trustee resolution to commence the pension
The trust deed must permit the pension type being commenced - an outdated deed may not allow certain pension structures

PC

Partial vs full pension commencement

A member does not need to convert their entire balance to pension phase:

Full commencement: Entire balance moved to pension phase. All earnings become tax-free. Subject to the transfer balance cap ($2M for FY2025-26).
Partial commencement: Only part of the balance moves to pension phase. The remainder stays in accumulation, taxed at 15%. Useful where the balance exceeds the cap or for estate planning purposes.

RV

Reversionary pensions

A reversionary pension automatically continues to a nominated beneficiary (typically a spouse) on the member's death, rather than being cashed out. Key features:

The nomination is made at the time the pension is established, not at death
The reversionary beneficiary receives the pension without any compliance action required by the trustee at the time of death
The reversionary beneficiary's transfer balance account is credited 12 months after the member's death, not immediately - this gives time to restructure if needed
Only dependants can be nominated as reversionary beneficiaries

▲ Why it matters

The pension agreement and trustee resolution must be signed and dated before the first payment is made. A pension that commences without proper documentation is technically not a valid pension - it may be treated as a lump sum payment, with entirely different tax consequences for the member. Backdating documents creates a far larger compliance problem than the original omission.

Section 03

Minimum pension drawdowns

Once an account-based pension commences, a minimum amount must be withdrawn from the fund each financial year. Failing to meet this requirement is one of the most common SMSF compliance errors and carries serious tax consequences.

MC

How the minimum is calculated

The minimum payment is calculated as a percentage of the account balance at:

1 July of the financial year, for pensions already in place at the start of the year
The commencement date, pro-rated to 30 June, for pensions starting mid-year

The percentage is determined by the member's age at 1 July (or at commencement for new pensions). The standard rates below apply for FY2025-26. The temporary reduced rates that applied during COVID years (FY2019-20 through FY2022-23) have not been extended.

Age at 1 July	Minimum drawdown
Under 65	4%
65-74	5%
75-79	6%
80-84	7%
85-89	9%
90-94	11%
95 and over	14%

IS

In-specie pension payments

Minimum pension payments must generally be made as cash. In limited circumstances an in-specie payment - such as transferring a parcel of shares - can satisfy the minimum, provided:

The trust deed permits in-specie payments
The payment is made at market value at the date of transfer
Trustee minutes formally document the in-specie payment

The ATO and auditors scrutinise in-specie payments closely. Always document market value and obtain trustee minutes. Cash payments are always the preferred approach.

FM

What happens if the minimum is not paid

If the fund fails to make the minimum payment by 30 June:

The pension is taken to have failed for the year
The account reverts to accumulation phase for the entire year
All earnings for the year lose their tax-free treatment
The fund pays 15% tax on all earnings that would otherwise have been exempt
The member's transfer balance account is adjusted

The ATO has a Commissioner's discretion to treat a pension as continuing despite a failure. This is not automatic and requires the trustee to apply. The shortfall must be paid as soon as practicable once identified.

▲ Why it matters

A missed minimum pension drawdown is entirely avoidable. Set a reminder each June to verify that the minimum for each pension account has been paid. Even a small shortfall causes the entire year's earnings to be taxed at 15%. The SMSF Compliance Calendar lists the 30 June drawdown deadline.

Section 04

Transition to retirement (TTR)

A transition to retirement pension allows members who have reached preservation age to draw an income stream from their super while still working. It is subject to more restrictions than a full account-based pension.

EL

Who can use a TTR pension?

Any member who has reached their preservation age can commence a TTR income stream. There is no requirement to retire, reduce hours, or cease employment. The sole eligibility requirement is reaching preservation age.

For members born on or after 1 July 1964, preservation age is 60.

TX

Tax on TTR earnings

This is the most important distinction between a TTR pension and a full account-based pension. Earnings on assets supporting a TTR pension are taxed at 15% inside the fund - the same rate as accumulation phase.

TTR earnings are not tax-free. The tax-free treatment (ECPI) applies only once a member has met a full condition of release. A TTR pension that has not converted remains in accumulation tax treatment for earnings purposes. This has been the case since 1 July 2017.

TR

TTR vs account-based pension: key differences

Feature	TTR pension	Account-based pension
Minimum drawdown	Same age-based rates	Same age-based rates
Maximum drawdown	10% of balance per year	No maximum
Lump sum withdrawals	Not permitted	Permitted
Tax on earnings	15%	0% (tax-free)
Counts toward TBC	No	Yes

CV

Converting a TTR to a full pension

Once a member meets a full condition of release (most commonly, retiring after reaching preservation age, or turning 65), the TTR pension can be converted to a retirement-phase account-based pension. At that point:

The 15% earnings tax no longer applies - earnings become tax-free
The 10% maximum drawdown restriction falls away
Lump sum withdrawals become available
The pension balance counts toward the transfer balance cap

The conversion requires a trustee resolution and documentation. It is not automatic.

WI

Is a TTR pension worth using?

The tax advantage of a TTR pension narrowed significantly after 1 July 2017 when the earnings tax changed from 0% to 15%. The common pre-2017 strategy of drawing a pension while salary sacrificing at maximum levels is now less compelling.

Legitimate uses of a TTR pension today include:

Supplementing income during reduced working hours without drawing on other savings
Bridging income between reaching preservation age and meeting a full condition of release
Where the member's personal income tax rate substantially exceeds 15% and pension payments carry the 15% tax offset

▲ Why it matters

Some trustees assume their TTR pension is tax-free because "pensions are tax-free." This is incorrect. Tax-free earnings treatment applies only to retirement-phase pensions, not TTR pensions. If your fund has a member in TTR, confirm with your accountant that the fund is applying the correct 15% tax treatment to TTR earnings and that those earnings are not being incorrectly reported as exempt.

Section 05

Exempt current pension income (ECPI)

ECPI is the mechanism that makes investment earnings from retirement-phase pension assets tax-free inside the fund. It is claimed in the fund's annual tax return and is one of the most significant tax advantages in the Australian super system.

WC

What ECPI covers

When a member is in retirement phase, the income and capital gains from assets supporting that pension are exempt from tax inside the fund. ECPI covers:

Interest income
Dividends (and franking credits remain refundable even where the fund has no tax liability)
Rental income
Capital gains, both discounted and non-discounted

ECPI does not apply to TTR pension assets or to assets supporting accumulation-phase member balances.

EM

The two ECPI methods

Segregated method:

Specific assets are identified as supporting pension liabilities. All income and gains from those assets are 100% exempt. No actuarial certificate is required.

Applies when: all fund members are in full retirement phase for the entire financial year (in most circumstances) AND no member has a defined benefit interest. Funds with any accumulation-phase member balances at any point during the year generally cannot use the segregated method.

Proportional (unsegregated) method:

An actuary calculates the proportion of the fund's income that is exempt, based on the ratio of pension-phase assets to total assets throughout the year. The exempt proportion is applied to all fund income.

Applies when: the fund has a mix of accumulation and pension-phase members, or where any member has a defined benefit interest. An actuarial certificate is required each year the proportional method is used.

WM

Which method applies to your fund?

Fund circumstances	Method	Actuary needed?
All members in full retirement phase all year	Segregated	No
Mixed accumulation and pension phase	Proportional	Yes
Any member has a defined benefit interest	Proportional	Yes
TTR pension only (no full retirement phase)	Neither	No

▲ Why it matters

Applying the wrong ECPI method - or failing to obtain an actuarial certificate when the proportional method applies - can result in the fund incorrectly reporting exempt income. This is a known ATO audit focus area. If your fund has members in mixed phases, confirm the correct method with your accountant before the annual return is lodged.

Section 06

The transfer balance cap

The transfer balance cap limits how much super can be moved into tax-free retirement phase. It is the single most important financial limit in pension planning for high-balance SMSF trustees.

TC

What the transfer balance cap is

The general transfer balance cap for FY2025-26 is $2M. This is the maximum amount a member can transfer into retirement-phase pensions over their lifetime.

The cap applies at the individual level, not the fund level
It is tracked through each member's personal Transfer Balance Account (TBA)
Exceeding the cap results in an excess transfer balance, which attracts tax on notional earnings
The general cap is indexed to CPI in $100,000 increments

PT

How the personal transfer balance cap works

Each individual's personal transfer balance cap depends on when they first entered retirement phase:

Members who have never entered retirement phase: personal cap equals the current general cap ($2M)
Members who first entered retirement phase when the cap was lower (e.g. $1.6M in 2017 or $1.7M in 2021): their personal cap may be proportionally higher, but is unlikely to equal the current general cap
The personal cap is calculated using an ATO formula based on the highest balance ever recorded in the transfer balance account

Members who commenced pensions in earlier years should check their personal cap through ATO Online Services via myGov rather than assuming it equals the current general cap.

CD

Credits and debits

Credits (amounts that count toward the cap):

Retirement-phase pension commencement - the value of the pension at the date it commences
Reversionary death benefit pensions - credited 12 months after the date of death (see Section 08)
Defined benefit scheme payments in some circumstances

Debits (amounts that reduce the cap space used):

Commutations (full or partial) of a retirement-phase pension
Structured settlement contributions
Excess transfer balance tax payments

EX

What happens if the cap is exceeded

If a member's transfer balance account exceeds their personal cap:

The ATO issues an excess transfer balance determination
The member must commute (remove) the excess from pension phase - back into accumulation or out of the fund entirely
Tax on notional earnings applies from the date of excess, at 15% (or 30% for repeated breaches)
The longer the excess remains unaddressed, the larger the tax liability grows

▲ Why it matters

Trustees who receive a reversionary pension on the death of their spouse often inadvertently exceed their personal transfer balance cap. The credit to the surviving spouse's account occurs 12 months after the death, providing time to plan. However if the combined pension values exceed the survivor's personal cap, action must be taken before that 12-month window closes. This is one of the most time-sensitive compliance issues in SMSF estate planning.

Section 07

Commuting a pension

Commutation is the process of stopping or reducing a pension. Understanding when and how to commute correctly is important for trustees managing the transfer balance cap, estate planning, or changing financial circumstances.

WC

What is a commutation?

A commutation converts a pension interest into a lump sum benefit. It can be:

Full commutation: The entire pension is stopped and the remaining balance is either paid out as a lump sum or rolled back into accumulation phase
Partial commutation: Part of the pension balance is commuted. The pension continues with the reduced balance.

WY

Why commute a pension?

Common reasons:

Exceeding the transfer balance cap: The ATO may require a commutation to bring the account back within the personal cap
Estate planning: Restructuring pension interests ahead of death can simplify death benefit administration
Changing income needs: A partial commutation may allow a lump sum not otherwise available under the drawdown rules
TTR to accumulation: A member may choose to stop drawing a TTR pension

TX

Tax on commutation

For members aged 60 and over who have met a full condition of release, lump sum commutations are generally tax-free.

For members under 60, the taxable component of a commuted lump sum is taxed at a maximum of 20% (plus Medicare levy) up to the low rate cap ($260,000 for FY2025-26), and at marginal rates above the cap.

The low rate cap is indexed annually in $5,000 increments. Confirm the current figure at ato.gov.au before any commutation for a member under 60.

TB

Commutation and TBAR

A full or partial commutation of a retirement-phase pension is a reportable event under the Transfer Balance Account Report (TBAR) framework. It must be reported to the ATO within 28 days of the end of the quarter in which the commutation occurred.

A debit is recorded in the member's transfer balance account, freeing up cap space for future pension commencements if needed. See the SMSF Compliance Calendar for quarterly TBAR due dates.

▲ Why it matters

Commuting a retirement-phase pension incorrectly - for example, rolling back into accumulation without confirming the tax implications first - can have unexpected consequences. Amounts returned to accumulation from retirement phase cannot be re-commenced as a pension without using transfer balance cap space again. Take professional advice before commuting any retirement-phase pension.

Section 08

Death benefit pensions

When an SMSF member dies, their pension does not automatically continue. The trustee must decide how to deal with the benefit - and the options available depend on who the beneficiary is and what documentation the fund has in place.

WH

What happens to a pension at death

On the death of a member, the pension either:

Automatically continues as a reversionary pension, if the member nominated a reversionary beneficiary when the pension was established
Ceases and the benefit must be paid out as a lump sum or as a new death benefit pension to an eligible beneficiary, depending on what the trust deed and any BDBN direct

EL

Who can receive a death benefit pension?

Not all beneficiaries can receive a death benefit as an ongoing income stream. Only the following are eligible:

A spouse or former spouse of the deceased
A child under 18
A child aged 18-24 who was financially dependent on the deceased
A child of any age who has a permanent disability
A person who was in an interdependency relationship with the deceased at the time of death

An adult financially independent child can only receive the benefit as a lump sum, not as an ongoing pension.

TX

Tax on death benefit pensions

Recipient	Tax treatment
Spouse (or other tax dependant)	Generally tax-free regardless of age
Child under 18	Tax-free
Child aged 18-24 (financially dependent)	Taxable component taxed at 15% plus Medicare levy, with a 15% tax offset
Child with permanent disability (any age)	Tax-free
Adult financially independent child (lump sum only)	Taxable component taxed at 15% plus Medicare levy up to the low rate cap; marginal rates above

Child pensions (other than to children with a permanent disability) must be fully commuted once the child turns 25.

RB

Reversionary pension vs BDBN

Trustees often ask whether to use a reversionary pension nomination or a binding death benefit nomination (BDBN). These serve different purposes and can work together.

A reversionary pension is established when the pension commences. It automatically continues to the nominated beneficiary without any trustee decision at death. The beneficiary's transfer balance account is credited 12 months after the member's death.

A BDBN directs the trustee to pay the death benefit to a nominated person. It applies to the lump sum value of any pension that is not reversionary, or to accumulation balances. BDBNs must generally be renewed every 3 years unless the trust deed provides for non-lapsing nominations.

Many funds use both: a reversionary pension for the ongoing income stream, and a BDBN for any remaining accumulation balance or non-reversionary components. This combination provides the clearest and most complete instructions to the trustee.

▲ Why it matters

The interaction between reversionary pensions and the surviving spouse's transfer balance cap is one of the most complex areas in SMSF pension administration. If the deceased's pension value, when added to the survivor's existing pension balance, would exceed the survivor's personal transfer balance cap, the survivor has 12 months from the date of death to restructure. Failing to act within that window creates a cap breach. Seek specialist advice immediately when a member dies.

Section 09

Common mistakes

These are the most frequently occurring pension compliance failures in SMSFs, drawn from ATO compliance data and audit findings. Most are avoidable with proper planning and documentation.

!

10 common pension compliance mistakes

1
Not making the minimum pension payment by 30 June. The most common and most avoidable pension compliance failure. Even a $1 shortfall means the fund technically failed the pension standards for the entire year.
2
Commencing a pension before a condition of release is met. A pension that commences before the member meets a condition of release is not valid. The ATO can require it to be unwound, with complex tax consequences.
3
Not documenting the pension commencement correctly. The pension agreement and trustee resolution must be signed and dated before the first payment is made. Backdating documents creates a far larger compliance problem than the original omission.
4
Assuming a TTR pension is tax-free. Earnings on TTR pension assets are taxed at 15%, not 0%. This has been the case since 1 July 2017. Funds not applying this correctly are lodging incorrect tax returns.
5
Applying the wrong ECPI method. Using the segregated method when the fund has accumulation-phase member balances, or failing to obtain an actuarial certificate when the proportional method applies, is a common lodgement error and an active ATO audit focus area.
6
Exceeding the transfer balance cap on commencement. Commencing a pension with a value above the member's remaining personal cap creates an immediate excess. Tax on notional earnings applies from the date the excess arises, not from when the ATO issues a determination.
7
Not reporting pension events through TBAR on time. From 1 January 2026, all SMSFs report quarterly. Commencing a pension, commuting a pension, and receiving a death benefit income stream are all reportable events. Late reporting can cause the ATO to issue incorrect excess transfer balance determinations.
8
Allowing a child pension to continue past age 25. Death benefit pensions paid to children (other than those with a permanent disability) must be fully commuted by the time the child turns 25. Allowing them to continue is a compliance breach.
9
Not reviewing reversionary pension nominations after a relationship change. A reversionary pension nomination made at commencement is difficult to change. If a member's circumstances change (separation, divorce, death of the nominated beneficiary), the fund's governing rules and the nomination need immediate review.
10
Failing to convert a TTR pension to a full retirement-phase pension once a condition of release is met. This keeps earnings taxed at 15% instead of 0% and unnecessarily restricts withdrawals. The conversion is not automatic - it requires a trustee resolution - and many trustees miss it.

Related resources: The Rules & Limits Reference covers the pension rules framework including minimum drawdown rates and the transfer balance cap summary. The SMSF Compliance Calendar has all key pension dates including the 30 June drawdown deadline and quarterly TBAR due dates. Terms used on this page are defined in the SMSF Glossary.

When can you access your super?

Preservation age

Full conditions of release

Restricted conditions of release

Account-based pensions

How an account-based pension works

Pension documents required

Partial vs full pension commencement

Reversionary pensions

Minimum pension drawdowns

How the minimum is calculated

In-specie pension payments

What happens if the minimum is not paid

Transition to retirement (TTR)

Who can use a TTR pension?

Tax on TTR earnings

TTR vs account-based pension: key differences

Converting a TTR to a full pension

Is a TTR pension worth using?

Exempt current pension income (ECPI)

What ECPI covers

The two ECPI methods

Which method applies to your fund?

The transfer balance cap

What the transfer balance cap is

How the personal transfer balance cap works

Credits and debits

What happens if the cap is exceeded

Commuting a pension

What is a commutation?

Why commute a pension?

Tax on commutation

Commutation and TBAR

Death benefit pensions

What happens to a pension at death

Who can receive a death benefit pension?

Tax on death benefit pensions

Reversionary pension vs BDBN

Common mistakes

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