Shifting to pension mode when you turn 60
Many know age 65 allows automatic unrestricted access to super. However, at 60, you can access your super by drawing a pension from your SMSF, but a “Condition of Release” must be met.
What happens in pension mode?
Starting a pension allows access to super. A SMSF member can start a retirement phase pension when they meet a condition of release or take a transition to retirement (TRIS) phase pension between ages 60 and 65 if not yet retired.
Transfer Balance Cap (TBC)
There is a limit an individual can have in retirement phase pensions which is known as the transfer balance cap (TBC). The limit for the 2025/26 year is $2.0 million. Each individual has a personal TBC which can differ to the general TBC. An individual starting a new retirement phase pension in 2025/26 year and never reported a pension previously can access the $2.0 million TBC aligning it to their personal TBC. The ATO tracks an individual’s super when it is transferred into pension phase from across all super funds as well as when the pension is partially or fully commuted. It is recommended you review your TBC within MyGov if you wish to commence another pension.
Pension Phase
A TRIS is not subject to a member’s TBC as it is not in retirement phase and therefore there is no limit to the amount that can be transferred to start a TRIS.
Account-Based Pension
An account-based pension (ABP) is a retirement phase pension.
Regular pension payments are made. At least a minimum pension payment is required annually which is a percentage of the member’s pension balance based on the member’s age at the time of establishment or at the start of the financial year. The annual pension payment is apportioned when a pension first starts part way through a year.
The pension factor starts of at 4% for an SMSF member under 65 and ranges to 14% at age 95 and over.
Partial commutations can be made provided the pension minimum is met.
An ABP is a tax-free income stream. Pension payments made to an individual over 60 are tax free. The SMSF does not pay tax on the income earned from an ABP. There can be significant tax savings when a property is sold at the time an SMSF is in 100% pension phase for all of the year.
Transition to Retirement Pension (TRIS)
A TRIS has the same terms and conditions as an ABP except for the following:
- it is not counted towards a person’s TBC
- there is a maximum pension payment of 10% of the pension balance at the start of the pension or the start of the financial year
- the 10% maximum is not apportioned when a TRIS is started part way through a year
- it cannot be partially commuted
the SMSF does not receive a tax benefit from earnings
When can you start a pension at 60?
You can legally access a pension from your SMF when you turn 60 in the following ways:
- Retiring at 60
- Not intending to be gainfully employed in the future
- Unrestricted non preserved balance (UNNP)
- Starting a transition to retirement pension (TRIS)
What is the importance of turning 60?
Your super money is generally preserved, meaning you cannot access it until you reach preservation age. Your preservation age is 60. Reaching preservation age does not mean you automatically have access to your super. It does mean you can access it when you satisfy a condition of release. There are specific circumstances allowing access to superannuation as a pension before reaching age 65.
Retiring at 60
When you turn 60, all funds in your SMSF accumulation phase can be moved from preserved to unrestricted non-preserved if you:
- stop gainful employment on or after age 60
- notify the SMSF trustee that you have ceased working
You can start an account-based pension once you meet the retirement definition at age 60 or over but before turning 65 and your accumulation account is transferred to unrestricted non preserved.
Terminating gainful employment?
Terminating gainful employment is to cease working at a job where you were employed for 10 or more hours or ceasing to be self-employed.
Example 1 – Jennifer resigned from her full-time job as an accountant 5th October 2024 when she turned 60
Jennifer is 60 and ceased working in a job where she was employed as an accountant for 40 hours per week. She meets the definition of retirement. She advises her SMSF trustee of this and her super balance is transferred from preserved to unrestricted non preserved on the 5th October 2024. She is able to start an account-based pension (ABP) with all of her super balance on 6th October 2024 which was $600,000.
Example 2 – Jennifer got bored and decided to go back to work 9 months later as a bartender working for 20 hours per week. Jennifer resigns from being a bartender two years later in July 2027 when she was 62.
Same details as example 1. In March 2025 she contributed $20,000 as a personal deductible contribution as she is under 65 and wants to claim a super deduction personally. After receiving a lottery windfall she makes a further non-concessional contribution of $100,000 in June 2025. Her employer contributes to her SMSF from her job as a bartender.
Jennifer’s ABP is 100% unrestricted non preserved and she does not have to wind it back when she started working as a bartender. The contributions made in March and June 2025 are fully preserved as well as any earnings. The employer contributions and earnings are also fully preserved.
When she resigns in July 2027 all of her accumulated super which was $130,000 was transferred from preserved to unrestricted non preserved after she informed her SMSF trustee of her resignation. Jennifer does not elect to take another ABP at this time but leaves her super balance in accumulation mode. The $130,000 continues to be unrestricted non preserved but the earnings on the $130,000 accumulation balance are preserved until she makes a declaration that she does not intend to become gainfully employed in the future or she turns 65.
Not intending to be gainfully employed in the future
Permanent retirement eligibility requires that you:
- have reached your preservation age of 60,
- have previously stopped gainful employment (even a part-time job at McDonalds as a teen qualifies), and
- the SMSF trustee agrees you do not intend to work again.
Your statement of intent at the time is what matters; returning to work later doesn’t negate it. If you’ve never worked, you cannot meet this retirement definition.
Unrestricted non preserved balance (UNNP)
A person may be over 60 and still be working. They may have had 2 jobs and retired from one to meet the definition of retirement to start an ABP. They do not meet the permanent retirement definition as they still intend to keep working.
Example 3 – Sue is employed full time as a bookkeeper and part-time for 12 hours per week on weekends in a café.
Sue turns 60 on 10th August 2025. She will have approximately $650,000 in her SMSF. She wants to start an ABP but intends to keep working full time until she turns 65. She has decided to cease working at the café when she turns 60. Sue will inform the trustee and wants to start an ABP with $400,000 as she wants some additional income but wants to keep some tucked away until she is closer to retirement at 65. She is able to start an ABP with $400,000 as she meets the definition of retirement as she is 60 and is ceasing an arrangement where she was gainfully employed. $400,000 can be transferred to an ABP and $250,000 can remain in her accumulation account but will be transferred to unrestricted non preserved. Sue would like to reduce her hours from her bookkeeping job when she turns 63 so she can transition into retirement. She still intends to work more than 10 hours per week, so she does not have a condition of release. However, as she has $250,000 in her accumulation account, which is unrestricted non preserved, she can access that to start a new ABP to supplement her wages at any time before she turns 65. Contributions made to her SMSF and earnings after she turned 60 will be preserved until she has another condition of release or turns 65.
Starting a transition to retirement pension (TRIS)
Refer to the above conditions in relation to a TRIS. A person starting a TRIS from their SMSF when they are 60 is not taxed on the income stream. Unlike an ABP the fund does not receive a tax exemption on the earnings from a TRIS. However, as a TRIS is not included in a member’s TBC there is no limit on the amount of a member’s accumulation account which can be transferred into pension phase. A maximum pension payment of 10% applies to a TRIS.
Example 4 – Maximum pension payment for a TRIS
Sam is 60 and is still working. His member balance is $2.5 million. He starts a TRIS on 10th June 2025 with his entire accumulation balance. He wants to buy a new home and needs a $250,000 deposit. He can take $250,000 being the 10% maximum amount he can withdraw. No apportionment is required, and he is over 60 and not taxed on the pension payment. He needs to ensure he does something with his TRIS as he nears 65. His TRIS will automatically transfer to an ABP when he turns 65 which could put him over his TBC threshold resulting in excess transfer balance tax. It is crucial that he obtains advice from a licensed financial planner well before he turns 65.