Changes to minimum annual payments for super income streams
The ATO is reminding SMSFs that for the 2023–24 financial year the 50 per cent reduction in the minimum pension drawdown rate will no longer apply.
In response to COVID-19, the drawdown rate changed as the government temporarily reduced superannuation minimum drawdown requirements for account-based pensions and similar products by 50 per cent for 2019–20, 2020–21, 2021–22 and 2022–23 financial years.
Form 1 July 2023 when calculating the minimum annual payment on a pension balance, the 50 per cent reduction will not apply to the calculated minimum annual payment.
The regulator advised that pensions that SMSFs pay must satisfy all of the following minimum standards:
- The pension must be account-based, except in limited circumstances.
- You must pay a minimum amount at least once a year. From 1 July 2017, partial commutation payments do not count towards minimum annual pension payments.
- Once the pension has started, you cannot increase the capital supporting the pension using contributions or rollover amounts.
- Where a member dies, their pension can only be transferred to a dependant beneficiary of that member.
- You cannot use the capital value of the pension or the income from it as security for borrowing.
- Before you can fully commute a pension, you must pay a minimum amount in certain circumstances.
- Before you partially commute a pension, you must make sure there are sufficient assets to pay the minimum amount, if you haven’t already done so.
All pensions that satisfy the minimum standards will generally be treated as super income stream benefits for income tax purposes. This means the fund may be able to claim an exemption for the income earned on pension assets, called an exempt current pension income (ECPI).
If the minimum pension standards are not met, the payments will not be treated as super income stream benefits.
Failing to meet the minimum pension payment standards for an income stream now not only means the fund loses ECPI for the income year, but that there are also transfer balance account consequences.
These include:
- The credit that arose when the member started the income stream remains in the individual’s transfer balance account
- The trustee must report to us the date that the super income stream ceases to be in the retirement phase for transfer balance cap purposes. This creates a debit in the individual’s transfer balance account at that time. The value of that debit is the value of the super interest which that supports the income stream just before it stopped being a super income stream. In most cases, this will not equal the original credit, due to payments made over time
There are limited circumstances in which the Commissioner of Taxation’s general administrative powers may allow a pension to continue even though the minimum pension standards have not been met. For more information go to SMSFs: Minimum pension payment requirements – frequently asked questions.
The SMSF must pay a minimum amount each year to a member from their pension account.
The minimum annual payment amount is worked out by multiplying the member’s pension account balance by a percentage factor. The amount is rounded to the nearest 10 whole dollars. If the amount ends in an exact five dollars, it is rounded up to the next 10 whole dollars.
