If your SMSF has any member receiving an account-based pension, there is a legal minimum payment that must reach the member by 30 June. Miss it, and the consequences do not begin from the date of the shortfall. They reach back to 1 July - the start of the financial year.
The ATO recently reminded SMSF trustees of this requirement ahead of the 30 June 2026 deadline. The consequences of missing it are widely underestimated, and the fix - once the year has closed - is not available.
Key Takeaways
- Every account-based pension paid from an SMSF must meet a minimum annual payment by 30 June each year.
- The minimum is calculated using the member’s pension balance at 1 July and a percentage factor based on their age at that date.
- Missing the deadline does not result in the pension ceasing on the day of the shortfall. The ATO deems it to have ceased on 1 July - the first day of the financial year.
- This can wipe the fund’s full-year tax exemption on pension assets and create Transfer Balance Account consequences.
- A limited ATO exception exists for small, honest mistakes, but trustees should not assume it applies automatically.
- For most trustees, the cleanest approach is a cash payment that clears by 30 June. In-specie payments are possible only in limited circumstances and need careful documentation.
Contents
- What Is an Account-Based Pension?
- How the Minimum Is Calculated
- What Happens If You Miss the Deadline
- The Limited ATO Exception
- Payment Practicalities: What Trustees Need to Arrange
- Frequently Asked Questions
What Is an Account-Based Pension?
An account-based pension is the most common type of pension paid from an SMSF. A member in retirement phase draws income from their superannuation balance, which remains invested inside the fund. The fund’s assets supporting that pension are generally entitled to tax-free treatment on their investment earnings - this is Exempt Current Pension Income, or ECPI.
The tax exemption is not automatic. It depends on the pension meeting the minimum payment standards every financial year. The minimum drawdown requirement is one of those standards, and it must be satisfied annually by 30 June without exception.
Some older legacy income streams operate under different rules. This article focuses on account-based pensions under the current minimum payment standards.
For a broader overview of how SMSFs manage the pension phase, including starting a pension, the transfer balance cap, and what changes when a member retires, see our SMSF Pension Guide.
How the Minimum Is Calculated
The minimum pension payment for a financial year is calculated by applying a percentage factor to the member’s pension account balance at 1 July of that year. The factor depends on the member’s age at that same date.
| Age on 1 July 2025 | Minimum annual factor |
|---|---|
| Under 65 | 4% |
| 65 to 74 | 5% |
| 75 to 79 | 6% |
| 80 to 84 | 7% |
| 85 to 89 | 9% |
| 90 to 94 | 11% |
| 95 or older | 14% |
Worked example
A member aged 70 at 1 July 2025 with a pension account balance of $500,000 at that date must receive at least $25,000 during the 2025-26 financial year.
$500,000 x 5% = $25,000
There is no maximum on how much a member can withdraw from an account-based pension.
Pro-rata rules for pensions that started mid-year
If a pension commenced part way through the financial year - for example, a member started drawing their pension on 1 January 2026 - the minimum is calculated on a pro-rata basis from the commencement date to 30 June, not the full annual factor.
Multiple pensions and multiple members
If your fund has more than one member in pension phase, each pension must meet its own minimum independently. Overpaying one member’s pension does not offset a shortfall in another member’s pension. The minimum standards apply separately to each pension being paid.
For current transfer balance cap figures, contribution limits, and other key thresholds, see our SMSF Rules and Limits reference page. To calculate your minimum drawdown amount and project how your pension balance will track over the next 10 years, use the SMSF Pension Planner.
What Happens If You Miss the Deadline
This is where many trustees significantly underestimate the impact of a missed minimum.
If the full minimum is not paid by 30 June, the ATO does not treat the pension as having ceased on the date of the shortfall. Under the law, the pension is taken to have ceased at the start of the income year - on 1 July 2025. The pension account is treated as having been in accumulation phase for the entire financial year. Rectification after 30 June is extremely limited and usually unavailable without the narrow exception described below.
Two significant consequences follow from this.
Loss of ECPI for the full year
The fund loses its ability to claim Exempt Current Pension Income for the entire financial year. Every dollar of investment income earned on those pension assets throughout the year - dividends, interest, rental income, capital gains - loses its tax-exempt status. Earnings that should have been taxed at 0% are instead taxed at 15%, the standard fund rate.
On a fund earning $60,000 in investment income on pension assets, that is a $9,000 tax bill arising from what is, in most cases, an administrative oversight. For larger funds or a year with significant capital gains, the figure can be substantially higher. The fund’s ECPI calculation for the year - whether using the segregated or proportionate method - must be redone, and the annual return may need to be amended to reflect the changed tax position.
Transfer Balance Account consequences
When a pension ceases, the trustee must report the cessation via a Transfer Balance Account Report (TBAR) to the ATO. This creates a debit against the member’s personal transfer balance, reducing the amount of their transfer balance cap that is “used.”
The complication arises when the member wishes to recommence a pension. The cessation and recommencement need to be reported correctly and can affect the member’s transfer balance account position. The general transfer balance cap is $2 million for 2025-26, rising to $2.1 million from 1 July 2026. For members who have already used most of their cap - or who have high balances - this can create planning constraints that go beyond a one-off tax cost.
The fund must also treat the member’s account as having been in accumulation phase for the entire year, which means all payment records need to be reclassified and the annual return adjusted accordingly.
A missed minimum is not a paperwork issue. It is a compliance breach with consequences that span the full financial year.
For more on the ATO’s current compliance priorities in the SMSF sector, see our 2026 ATO compliance update for SMSF trustees.
The Limited ATO Exception
In limited circumstances, the ATO will allow a pension to continue despite a shortfall. All three of the following conditions must be satisfied.
The underpayment must be small. Specifically, no more than one-twelfth of the annual minimum required. For a member with a $25,000 minimum, this means the shortfall cannot exceed approximately $2,083.
The failure must have been an honest mistake or circumstances outside the trustee’s control. A deliberate decision to underpay, or a cash flow management choice that resulted in the shortfall, does not qualify. The ATO expects trustees to demonstrate genuine oversight - not a considered decision that simply did not work out as planned.
A catch-up payment must be made as soon as practicable. In most cases this is interpreted as within 28 days of becoming aware of the underpayment.
If all three conditions are met, the trustee can self-assess the exception and treat the pension as having continued without interruption. ECPI is preserved and the Transfer Balance Account is unaffected.
If the self-assessment conditions are not met, do not assume the pension has continued. You may need to write to the ATO and ask the Commissioner to apply the exception, with evidence explaining the shortfall and catch-up payment. Without an accepted exception, the pension ceases for income tax purposes from the start of the income year.
For the ATO’s full guidance on the exception, including worked examples of circumstances the ATO will and will not accept, see the ATO’s exception to minimum pension payment requirements page.
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Payment Practicalities: What Trustees Need to Arrange
2025-26: Key Dates and Numbers
Use the pension account balance at 1 July 2025 and the age factors in the table above. The deadline is 30 June 2026 - a Tuesday this year, so no weekend timing issue. For cash payments, allow enough time for funds to clear. If you have illiquid assets or multiple members in pension phase, start the process now.
Calculate the minimum now, not on 29 June
For each member in pension phase, take the pension account balance at 1 July 2025 and apply the factor for their age at that date. Compare the result against what the fund has actually paid during the year so far. If a shortfall exists, act immediately.
The ATO’s minimum pension drawdown reminder sets out the calculation and factor table directly from the regulator.
Cash payments must clear by 30 June
For most trustees, the safest way to meet the minimum is a cash pension payment that leaves the fund’s bank account and reaches the member’s account by 30 June. The critical point is cleared funds - not an instruction issued on 30 June. Bank transfers that are initiated on 30 June but do not clear until the following business day can create a shortfall.
30 June 2026 falls on a Tuesday, so there is no weekend complication for this year. But the transfer still needs to be initiated early enough to clear before close of business on that date. For funds that rely on same-day transfers, confirm with your bank that the relevant account supports this.
Illiquid assets require early action
If the fund’s pension account is heavily weighted toward illiquid assets - direct property, unlisted investments, or other assets that cannot be quickly converted to cash - the planning horizon is longer. Selling an asset to fund the pension payment, receiving settlement, and ensuring cleared funds are available in the fund’s bank account by 30 June requires a timeline that starts well before the deadline, not at the end of June.
If your fund’s investment strategy does not currently reflect the liquidity requirements of pension phase, it should. See our SMSF Investment Strategy guide for what the strategy must address.
Record the calculation in trustee minutes
Once the minimum has been confirmed and paid, record the calculation and the payments made in the fund’s trustee minutes. Note the member’s name, the pension balance at 1 July 2025, the applicable factor, the minimum amount, and the payments made during the year. If the fund is relying on the ATO’s limited exception for a small underpayment, document that decision in the minutes as well - including the circumstances, the evidence that the shortfall was an honest mistake, and when the catch-up payment was made. This is a low-effort step that your auditor will look for during the annual audit, and it is far easier to document correctly now than to reconstruct after the financial year has closed.
Frequently Asked Questions
How do I confirm the correct pension balance to use for the calculation?
Use the pension account balance as at 1 July 2025 - the opening balance for the 2025-26 financial year. This is not necessarily the same as the current account balance, which will have moved due to investment returns and withdrawals during the year. Your SMSF administrator will have the opening balance on file.
Can a partial commutation count toward the minimum pension payment?
No. Since 1 July 2017, partial commutation payments do not count toward the annual minimum pension payment. A partial commutation is legally a lump sum benefit, not a pension payment, and is treated separately for both tax and minimum standards purposes. Only regular pension income payments count toward satisfying the minimum. If you have made partial commutations during the year and are relying on them to meet the minimum, you will have a shortfall.
Can the fund make the pension payment in assets rather than cash?
An in-specie transfer - where the fund transfers an asset to the member rather than cash - can constitute a pension payment in limited circumstances, and must be carefully documented. The asset must be valued at market value on the date of transfer, and the transfer must be properly recorded. This approach carries additional complexity and risk, particularly around correct valuation. Specialist advice is warranted before relying on an in-specie payment to meet the minimum.
What if one pension in the fund meets the minimum and another does not?
Each pension is assessed independently. If your fund pays two pensions - one to each member - both must meet their respective minimums. Overpaying member A’s pension does not offset a shortfall in member B’s pension. If member B’s pension falls short and the exception conditions are not met, member B’s pension ceases from 1 July, with all associated consequences. Member A’s pension is unaffected.
What happens to the minimum pension requirement in the year a member dies?
The answer depends on the type of pension. For a non-reversionary account-based pension - one that does not automatically continue to a surviving dependant - no minimum pension payment is required in the financial year in which the member dies. For a reversionary pension - one that continues to a nominated dependant after the member’s death - the minimum must still be paid for the year of death. The rules around pension cessation and death benefits interact with binding death benefit nominations and estate planning considerations. See our SMSF Death Benefits and Estate Planning guide for more.
Does the minimum pension requirement apply to a Transition to Retirement Income Stream (TRIS)?
Yes. A TRIS has the same minimum payment requirement as an account-based pension in full retirement phase. It also has a maximum annual payment of 10% of the account balance (for a TRIS not yet in retirement phase). The minimum standards apply regardless of whether the TRIS is in retirement phase or not. If a member has converted their TRIS to full retirement phase by meeting a condition of release, the 10% maximum no longer applies, but the age-based minimum still does.
For high-balance members, does Division 296 affect this calculation?
Division 296 tax applies from 1 July 2026 to earnings on super balances above $3 million. It does not directly change the minimum pension payment calculation, which remains based on the age factor and opening balance. However, for members affected by Division 296, the interaction between pension drawdowns, account balance management, and the timing of any cost base reset election makes coordinated planning important. See our Division 296 CGT cost base reset guide for more.
What if I overpay the minimum?
There is no issue with paying more than the minimum. There is no maximum on account-based pension withdrawals in retirement phase. The only exception is a Transition to Retirement Income Stream (TRIS) that has not yet entered retirement phase, which is capped at 10% of the account balance per year. For a fully commuted pension or a standard account-based pension in retirement phase, overpayment presents no compliance issue.
How does a failed pension affect the ECPI calculation method?
If the pension ceases from 1 July, the fund cannot claim ECPI for that pension’s assets for the entire year. This affects both the segregated and proportionate (actuarial) methods. Under the segregated method, assets that were set aside to support the pension are no longer segregated current pension assets from 1 July, and any income earned on them becomes taxable at 15%. Under the proportionate method, the actuarial certificate calculation must exclude those assets from the pension phase proportion. In both cases, the annual return will need to be prepared - or amended - to reflect the changed tax position. For significant funds or years with material investment income, the additional tax liability can be substantial.
Can a trustee rely on the limited exception more than once?
The exception is an administrative concession, not an annual allowance. If you have self-assessed the exception in a prior income year, the ATO says you cannot self-assess it again; you need to write to the ATO and ask whether the Commissioner will apply the exception. Repeated shortfalls are also likely to attract closer auditor and ATO scrutiny.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always consult a licensed financial adviser or SMSF specialist before making decisions about your fund.