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THE IMPORTANCE OF WITHDRAWING YOUR MINIMUM PENSION

The ATO requires super funds to adhere to strict rules of paying the minimum pension to its account holders.

To secure a tax exemption each financial year for the investment earnings on your super fund’s assets financing your account-based pension, you need to withdraw your minimum pension per annum.

Your minimum pension is calculated by using your age at 1 July each financial year and the percentage factor for your age. For example, if you were between 65 years and 74 years on 1 July 2017, then 5% of your pension’s account balance may be taken as your minimum pension for that financial year.

Therefore:

Minimum Pension Payment = Account Balance x Percentage Factor (age-related)

If a super fund fails to pay its account holders the minimum pension amount in any given financial year, then it is regarded as having contravened the ATO’s super rules.

Such a breach means that a super pension no longer meets the definition of a super pension and consequently the earnings on the super pension assets could lose their tax-exempt status for the financial year of non-compliance unless certain conditions exist.

Should failure to pay the minimum pension amount be due to an honest mistake and result in a small underpayment not exceeding one-twelfth of the minimum pension payment;

OR

Should failure to pay the minimum pension amount be due to matters beyond the trustee’s control, then if, apart from the small underpayment, the super pension was compliant with the ATO’s super rules, a catch-up payment must be made within 28 days of the trustee becoming aware of the underpayment within the relevant financial year.

If these conditions exist and are satisfied as described above, then an existing super pension is deemed to continue to operate and the trustee may claim the tax exemption on super pension assets for that account for that financial year. Any super pension payments will be super pension payments and will not be considered to be lump sum payments.

If a super fund or SMSF does not meet its minimum super pension payments, then the super pension account will be deemed to have ceased at the start of that financial year for income tax purposes.

For more information, please refer to the ATO’s FAQ page at:

https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/SMSF-technical/SMSFs--Minimum-pension-payment-requirements---frequently-asked-questions/

How can YML help?

Talk to our advisors and accountants to see how the YML Super Solution Team can assist you with your pension requirements. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.