Moving your self-managed super fund (SMSF) into the pension phase is one of the most significant milestones in your retirement journey. It marks the point where the focus shifts from growing your savings to drawing a reliable income from them. The rules, the tax treatment, and the day-to-day decisions all change at this moment, and getting them right can make a meaningful difference to how comfortable and how tax-effective your retirement is.
Most guides cover the basics well: preservation age, conditions of release, the transfer balance cap, and the minimum drawdown rates set by the ATO. Those are important, and we will touch on them. But the questions that keep many SMSF members up at night are more practical. Is it still worth running the fund? When should you sell assets? How do you pay yourself an income if most of your money is tied up in property? This guide works through those real-world decisions in plain English.
Is an SMSF worth keeping in pension phase?
This is the question many trustees ask once the fund stops being about accumulation and starts being about income. The honest answer is that it depends on your balance, your assets, and how much of the work you want to do yourself.
An SMSF carries fixed running costs that do not shrink just because you have retired. You will generally pay for annual accounting, an independent audit, the ATO supervisory levy, and an actuarial certificate if your fund holds both pension and accumulation interests. For a fund with a healthy balance, those costs are a small percentage of total assets and the control can be well worth it. For a smaller fund, the same fixed costs can quietly eat into returns, and a low-cost pooled fund may deliver a better net result with far less effort.
There is no single magic number, but the principle is simple. The larger your balance and the more you value direct control over your investments, the more an SMSF tends to make sense in retirement. If your balance has reduced, your assets are straightforward, or you would rather spend your time enjoying retirement than managing compliance, it is reasonable to weigh up whether the fund is still earning its keep.
It also helps to revisit why you set the fund up in the first place. If those reasons still hold true, such as holding a specific property or a portfolio you actively manage, keeping the SMSF is often the right call. If the original purpose no longer applies, this is a sensible time to review your options with a qualified adviser before committing for another year. It is also worth staying across recent tax changes affecting SMSF retirees, as these can shift the maths on whether the fund still suits you.
When should you sell assets to avoid CGT?
One of the most valuable features of the pension phase is the way capital gains are treated, and timing your sales well can save a great deal of tax.
While your fund is in the accumulation phase, capital gains on assets sold are taxed at 15 per cent, reduced to an effective 10 per cent where the asset has been held for more than 12 months thanks to the CGT discount. Once an asset is supporting a retirement-phase pension, the earnings and capital gains on that asset are generally exempt from tax inside the fund. In practical terms, this means that selling an appreciated asset after you have commenced a pension can be far more tax-effective than selling it beforehand.
This creates a clear planning opportunity. If you are holding investments with large unrealised gains and you are approaching retirement, it can pay to wait until those assets are clearly supporting your pension before you sell. Selling too early, while the fund is still in accumulation, can trigger a tax bill that careful timing would have avoided.
Where a fund holds both pension and accumulation balances, the picture is more nuanced. Some trustees use segregation to link a specific high-gain asset directly to the pension account, so the exemption clearly applies on sale. Others rely on the proportioning method, where an actuarial certificate determines the tax-exempt share of all fund earnings. Each approach has rules and trade-offs, and the right choice depends on your fund’s circumstances. Because the tax savings here can be substantial, this is an area where professional advice usually pays for itself, and it is worth exploring the broader super tax strategies that can work alongside good timing.
How do you fund pension payments from property?
If a large part of your fund is invested in property, meeting your minimum pension payments can become a real challenge, and it is one that catches many trustees by surprise. This is something to weigh up carefully when buying property through an SMSF in the first place.
Once you commence an account-based pension, the ATO requires you to withdraw a minimum amount each year, calculated as a percentage of your pension balance based on your age. The percentage starts at 4 per cent for members under 65 and rises with age. The payment has to actually leave the fund and reach you. A journal entry is not enough. If you miss the minimum, the fund can lose its tax-exempt status for the entire year, which is an expensive mistake.
The difficulty is that property is illiquid. You cannot sell a bedroom to cover a pension payment. If rent is your only income inside the fund and it does not cover the required drawdown, you can find yourself under pressure to sell the whole asset at an inconvenient time, or even breaching the rules.
There are several ways to manage this, and the key is to plan ahead rather than react. Holding a sensible cash buffer inside the fund gives you a ready source for pension payments without forced sales. Choosing income-producing investments alongside the property, such as shares paying franked dividends or steady rental income from an SMSF-owned property, helps the fund generate enough cashflow to meet drawdowns. In some cases, an in-specie or partial strategy can be considered, although these are complex and need careful structuring. The lesson from many trustees is the same: liquidity planning should happen before you commence the pension, not after the first payment is due.
Choosing investments in SMSF pension phase
When your fund moves into pension phase, the investment strategy that served you well during your working years may no longer be the right fit. The goal changes from building wealth to producing a dependable income that lasts.
A common issue is holding too much in cash. It feels safe, and it certainly helps with liquidity, but a large cash holding can struggle to keep pace with inflation and may leave your income falling short over a long retirement. The aim is to strike a balance between investments that produce reliable income and investments that continue to grow your capital.
Income-producing assets such as dividend-paying Australian shares, fixed interest, and some exchange-traded funds can help your fund meet pension payments without selling down capital. Franking credits attached to Australian dividends can be especially useful in pension phase, because the fund may be able to claim them as a refund when its earnings are tax-exempt. Growth assets still have a place too, since most retirements last for decades and your money needs to keep working.
It is also worth remembering that an SMSF can hold members in different phases at the same time. If one member is drawing a pension and another is still in accumulation, the strategy needs to suit both. Your written investment strategy should reflect these goals, your need for liquidity, and your tolerance for risk, and it should be reviewed regularly as your circumstances change.
SMSF pension phase costs and deadlines
Running an SMSF in pension phase comes with ongoing costs and a calendar of obligations, and staying on top of both protects your fund’s valuable tax concessions.
On the cost side, you can generally expect annual accounting and administration fees, an independent audit, the ATO supervisory levy, and, where your fund is not segregated, an actuarial certificate to confirm the tax-exempt portion of earnings. Bundling these into one accounting, taxation and superannuation service can make the costs more predictable. These costs are predictable, so it is worth knowing them in advance and factoring them into your view of whether the fund remains worthwhile.
On the timing side, the dates matter just as much as the dollars. Your minimum pension payment must be made before 30 June each year, and the funds need to clear from the fund’s bank account in time, so leaving it to the last week is risky. When you first commence a pension, you need a current market valuation of the supporting assets, and the fund must report the commencement to the ATO through a transfer balance account report. If you are planning to start a pension around the end of the financial year, be aware that accountants and administrators are busy in that period and many have cut-offs well before 30 June.
Good record keeping ties all of this together. Trustee minutes, valuations, and pension documentation should be kept and up to date, both to satisfy the auditor and to keep your fund firmly within the rules.
Getting it right with the right support
The pension phase rewards careful planning. The tax benefits are real, the income can be reliable, and the control an SMSF offers suits many retirees very well. At the same time, the compliance, the timing, and the investment decisions become more demanding at exactly the stage of life when many people would rather not be buried in paperwork.
If you are weighing up whether to keep your SMSF, how to time the sale of an asset, or how to structure your investments for income, it makes sense to seek advice tailored to your situation. A qualified SMSF specialist or licensed financial adviser can help you make the most of the concessions available, stay compliant, and enjoy a retirement that feels secure rather than stressful. If you would like to talk it through, you can get in touch with our team for guidance suited to your circumstances.
