Key Highlights

  • The minimum is the 1 July account balance multiplied by an age-based percentage.
  • Payments must be made before 30 June.
  • Partial commutations do not count towards the minimum.

An account-based pension in an SMSF comes with a yearly payment obligation. Miss it, and the consequences can reach well beyond a late payment. With the 2026–27 year under way, trustees paying pensions should know how the minimum is worked out and what protects the pension's tax status.

This article draws on the ATO's income stream rules page (last updated 30 April 2026) and its minimum pension drawdown reminder (last updated 25 May 2026).

The basic rule

The ATO says an account-based pension must be paid at least a minimum amount each year, and that payments must be made before 30 June. The ATO's May 2026 reminder says the minimum applies to pensions that commenced on or after 20 September 2007, which are mainly account-based pensions. It says the consequence of missing the minimum can be adverse tax consequences for the member.

The ATO's pension page adds that, from 1 July 2017, partial commutation payments do not count towards the minimum. A benefit counts as paid when the member receives it and the SMSF's balance is reduced.

How the minimum is calculated

The ATO's formula is the account balance multiplied by an age-based percentage, rounded to the nearest $10, with amounts ending in exactly $5 rounded up. The balance used is the one at 1 July, or at the start day if the pension began during the financial year. For 2023–24 onward, the ATO lists these percentages: under 65, 4 per cent; 65 to 74, 5 per cent; 75 to 79, 6 per cent; 80 to 84, 7 per cent; 85 to 89, 9 per cent; 90 to 94, 11 per cent; and 95 and over, 14 per cent. The ATO says reduced factors applied in 2019–20 to 2022–23.

If the pension starts after 1 July, the annual amount is multiplied by the remaining days and divided by 365 (366 in a leap year). If the pension starts on or after 1 June, no minimum is required for that year. The ATO's own worked example, a $250,000 pension started on 1 January 2023 by a 66-year-old at the then-reduced 2.5 per cent factor, produces a prorated minimum of $3,100. That is the ATO's example and uses a past reduced rate.

Special cases

In the year of death, the ATO says a reversionary pension still needs its minimum payment, while a non-reversionary account-based pension does not need one. A transition-to-retirement income stream follows the same minimum standards but is also capped at 10 per cent of the account balance, unless the member has met a condition of release with no cashing restrictions. Exceeding the cap means the stream is treated as having stopped at the start of the year.

Before a full commutation, the minimum amount must be paid. Before a partial commutation, there must be enough assets to pay it.

What happens if the minimum is missed

The ATO's page says that if the standards are not met, the stream is treated as having ceased at the start of the income year for tax purposes. Payments for that year and later years are not super income stream benefits, and the fund cannot claim exempt current pension income for them. The member's transfer balance credit stays in their account, and the stop date must be reported on a transfer balance account report. To receive a pension again, the stream must cease, for example by commutation, and a new one must start, with the trustee revaluing assets, recalculating the minimum and tax components and reporting the new stream. The ATO says the Commissioner's general administrative powers may allow a pension to continue in limited circumstances; trustees should not count on that.

Reporting

Each commutation is a transfer balance cap event and must be reported on a transfer balance account report. The ATO's TBAR page says most events are reported quarterly, within 28 days after the end of the quarter in which they occurred. The ATO's pension page says commutations should be documented when the request is made and recorded in trustee minutes.

Practical considerations

Trustees might calculate each pension's minimum in July, set up regular payments, and review in the spring whether the year-to-date total is on track. A fund with illiquid assets may need to plan where payments will come from. Paying well before 30 June also avoids the risk of a weekend or public holiday causing problems, because the ATO says payments must still be made before 30 June if the date falls on one.

Hypothetical example

A hypothetical 70-year-old with a pension balance of $400,000 on 1 July would have a minimum of $20,000 at the 5 per cent factor. This is a simple illustration using the ATO's published factor and is not personal advice.

Takeaway

The minimum pension is a yearly test with real consequences. Trustees should calculate it from the correct balance, apply the right factor, pay before 30 June, report events promptly and seek advice if a shortfall occurs.