Are you headed towards retirement? Read this eBook now to learn the benefits of an SMSF and Pension.

1. A Beginner’s Guide to
Pension and SMSF

2. Introduction 3
01/ The benefits of setting up a pension in an SMSF 5
Tax benefits 6
Refund of franking benefit 7
Two accounts in one with an SMSF 8
Investments do not change 9
03/ Super strategies to make your pension last longer 19
TRIS in combination with Salary Sacrifice 20
In it for the long haul 22
Conclusion 23
02/ Types of pensions and how to set them up 11
Type 1: Transition to Retirement Pension 12
Type 2: Account Based Pension 14
Setting up your pension 17

3. Introduction
to navigate – particularly when you reach an age where you’re looking into
retirement and pension withdrawals. Depending on your age and work circum-
stances, there are two types of pensions you can draw on: Simple Account
Based Pension or Transition to Retirement Pension (TRIS/TRAP).
If you’re reading this thinking, “Oh no, I have no idea of which pension account I
can set up,” don’t worry – it’s completely normal. The good news is, you can
educate yourself today with the help of this eBook. Start making better
decisions now and enjoy life at 50+ knowing your finances will be taken care of.
W
hile a self-managed super fund offers you greater control of your super
and wider investment options, operating an SMSF can be a tough path

4. Depending on your
age and work
circumstances,
there are two
types of pensions
you can draw on.
“ “

5. Once you reach preservation age (which does vary depending
on when you were born, but is generally between 55 and 60), you
have the option as a self-manager of your superfund to set up a
pension. The prevailing benefit is you’re able to access your
super after your preservation age even while you’re still working,
but there’s more. Once you reach preservation age and
commence your pension arrangements, your tax breaks as an
SMSF owner can be considerably more favourable.
Date of Birth
55
56
57
58
59
60
Before 1 July 1960
1 July 1960 – 30 June 1961
1 July 1961 – 30 June 1962
1 July 1962 – 30 June 1963
1 July 1963 – 30 June 1964
From 01 July 1964
Preservation Age
Commencing a Pension in Your SMSF 5
01/
The benefits of setting up
a pension in an SMSF

6. Once you commence an Account Based Pension – your tax rate
reduces to NIL on all interest and dividends paid on your invest-
ments, and on realised capital gains from the sale of assets that
support the Pension account.
Once you commence a Transition to Retirement Pension
(TRIS), the same tax benefits could be achieved for Financial
Years prior to 01 July 2017. However, from 01 July 2017, the tax
exemption benefit has been removed for Transition to Retire-
ment Pensions regardless of the date the TRIS commenced.
You’ll also enjoy concessional tax payments on your withdraw-
als while you’re under 60, and tax-free withdrawals thereafter.
Tax Benefits
Commencing a Pension in Your SMSF 6

7. You’ll also receive annual franking credits from the ATO (Austra-
lian Taxation Office). If you commence an Account Based
Pension, your SMSF earnings including dividends allocated to
your Account Based Pension are tax-free. That doesn’t mean,
however, that Australian companies aren’t still paying the 30%
tax on dividends received by your super. These tax payments
equal a full refund coming straight back to your Fund.
Refund of Franking Benefit
For every $10,000 received in
fully franked dividend income,
your SMSF receives $4,285 as
a cash refund from the ATO
each and every year the
dividends are paid, after you
commence a Simple Account
Based Pension!
DID YOU KNOW?
Commencing a Pension in Your SMSF 7

8. With Retail and Industry Funds, your benefits are typically
invested separately in a pension or an accumulation account.
This can mean double the fees as each account is managed
separately with separate investments and a separate fee
structure. Usually, the more Funds, the more fees you need to
pay.
However, an SMSF is a pension and accumulation Fund in one.
You can commence a pension and continue contributing to the
same SMSF. The contributions made after the pension has
commenced, which are still subject to the contribution rules,
will be allocated to your accumulation account.
Two accounts in one with an SMSF
Commencing a Pension in Your SMSF 8

9. The important thing to remember when preparing to commence
your pension arrangements is that nothing surrounding your
investments changes. Everything will remain as it is, and if
you’re still working after preservation age, you can even keep
contributing. The only changes are you will have to execute a
legally binding paperwork declaring your intention to
commence accessing your super benefit as an income stream
to supplement your living expenses and that earnings including
realised capital gains allocated to a tax-free pension account
will be exempt from tax.
Investments do not change
9Commencing a Pension in Your SMSF

10. Once you reach 60 years
of age, all pension incomes
are entirely tax free in
your personal tax return.“
“

11. Opting for a pension from your super can be incredibly
rewarding and ensure you’re enjoying a financially
healthy retirement for longer. So, which pension should
you commence? Pensions can be complicated and
confusing to understand. However, you do not really
have an option when it comes to pensions. The
diagram on the right helps you understand which
pension type you should commence.
YES NO
Are you under
age 65?
YES NO
Are you
retired?
YES
NO
You cannot set up
a pension yet
Simple Account
Based Pension
Transition to
Retirement Pension
Which pension should
you commence?
Have you reached the preservation age?
02/
Types of pensions
and how to set them up

12. The Transition to Retirement Pension (known as TRIS or TRAP),
really, is exactly that. While you might be looking forward to the
relaxed lifestyle that comes hand-in-hand with retirement, you
might not be fully ready to throw the towel in – and for this, we
salute you. So, the Transition to Retirement Pension allows you
to continue working (full-time or part-time) while supplement-
ing your income with your superfund – providing you’re
between preservation age and 64.
A Transition to Retirement Pension stipulates that you can
withdraw up to 10% from your superfund per annum – which is
great news if you’re still adjusting to the part-time wage, or if
you’re planning to take up a new hobby or travel in your
new-found spare time.
Commencing a Pension in Your SMSF 12
Type 1
Transition to Retirement Pension

13. Retirement isn’t so taxing
You’ve probably heard talk of tax benefits that result from
superannuation pensions, and you’re not wrong. When you
make the decision to commence a Transition to Retirement
Pension, your superfund enters the pension phase. Prior to 01
July 2017, your superfund earnings on assets supporting a
Transition to Retirement Pension are tax free. However, from 01
July 2017, earnings in a Transition to Retirement Pension
account are taxable up to 15%. Once you reach 60 years of age,
all pension incomes accessed from your superfund are entirely
tax free.
The benefit here is that you can keep working – and even
contributing – to your superfund without the ‘one step forward
two steps back’ issue of tax payments. You can start enjoying
retirement on your hard-earned super while still maintaining an
ounce or two of normality – and of course, ongoing contribu-
tions to your fund.
That magic number
Once you reach age 65 or retire, your TRIS would receive the
same benefits as a tax-free Pension (i.e. an Account Based
Pension).
Commencing a Pension in Your SMSF 13

14. An Account Based Pension is for those who are between
preservation age and 64 and retired, or over 65.
It’s important that we address the ATO’s definition of retired in
this instance. If you’re over 60, you are retired if you cease your
employment. You can, however, return to work shortly after. If
you’re between preservation age and 59, to be considered
retired you must cease work with the intention of never return-
ing to employment. If you are in this age bracket but don’t want
to declare yourself retired with no intention to return to work, a
Transition to Retirement Pension may suit you better.
Type 2
Account Based Pension
Commencing a Pension in Your SMSF 14

15. The sky is the limit
With an Account Based Pension, you have free reign on your
superfund, subject to a minimum withdrawal amount. That
means you are able to withdraw as much as you wish from your
superfund, and your minimum compulsory amount varies with
age - changing from 4% up to 14% between preservation age
and 95+.
Minimum Pension Factor
Under 65
65-74
75-79
80-84
85-89
90-94
4%
5%
6%
7%
9%
11%
Age Range
95 or more 14%
Commencing a Pension in Your SMSF 15

16. Commencing a Pension in Your SMSF 16
Super sweet 60
Once you reach age 60, all accessed pension income is tax-free,
so providing you’re adhering to your minimum withdrawals, your
tax benefits remain incredibly worthwhile.
Make it last
The downside to the complete access to your superfund is that
it’s up to you to manage your cash flow. With a Transition to
Retirement Pension, your withdrawals are restricted, but an
account-based pension leaves the control in your hands. You’ll
need to be sure you’re in a position to manage your money
without a weekly or monthly wage income – and plan ahead to
avoid unforeseen costs that come with retirement.

17. Once you’ve decided which pension is for you, ESUPERFUND
will guide you through the process of commencing your
arrangements. You can submit our forms online, nominating a
commencement date between 1st July of the current financial
year and today’s date. ESUPERFUND will then prepare the
documentation for you, and your funds will be accessible from
your nomination date.
17Commencing a Pension in Your SMSF
Setting up your pension

18. Once you’ve decided which
pension is for you,
ESUPERFUND will guide
you through the
process of commencing
your arrangements.
“ “

19. 03/
Super strategies to make
your pension last longer
19Commencing a Pension in Your SMSF
If you’re worried about how your superfund and/or pension will
fare through your years of retirement, you’re not alone. Retire-
ment can end up being more costly than adverts lead you to
believe. After all, we’re living longer… but are our pensions doing
the same?
While budgeting and cash flow is an important aspect of
managing your pension, if you do it right early on and take
advantage of the tax and other strategies available to pension
owners, your money can go further than you think.

20. What is salary sacrifice?
Salary Sacrifice describes the strategy of entering into an agree-
ment with your employer to pay part of your pre-tax salary
directly into your SMSF. The financial benefit in adopting a
strategy of salary sacrificing is that the contributions made into
your SMSF are not taxed in your personal name but in the SMSF
at 15%. So if your personal tax rate is more than 15% there is a
tax advantage in salary sacrificing. If you are on the top margin-
al tax rate of 47% (including the Medicare levy) you can save up
to 32% on each dollar you salary sacrifice into super. This can
result in thousands of dollars in tax benefits each year.
TRIS in combination with Salary Sacrifice
20Commencing a Pension in Your SMSF

21. The effectiveness of a Salary Sacrifice Strategy can be magni-
fied when incorporated with a TRIS Strategy. This strategy
basically involves you salary sacrifice as much of your income
as you can afford (subject to limits) on one hand and on the
other you receive a Pension income stream from your SMSF to
help fund your living costs. You can think of it as a "round robin"
strategy where the money that is salary sacrificed is channeled
back to you as a pension payment but in the process saving you
thousands of tax dollars in tax.
After the age of 60, implementing a TRIS Strategy in combina-
tion with a Salary Sacrifice Strategy is truly a remarkable tax
saving strategy because all pension payments are tax free after
60. The tax saving benefits accrue on two levels. The first is that
you pay less tax on the salary you sacrifice. The second is that
there is no tax payable on the TRIS you draw from the SMSF
after you reach the age of 60.
21Commencing a Pension in Your SMSF

22. Starting to think about setting up pension arrangements doesn’t
mean your investment growth halts. Be careful getting swept
away by short-term gains. Trust your long-term investment
decisions and watch your super grow throughout your
retirement.
In it for the long haul
22Commencing a Pension in Your SMSF

23. Setting up a pension will let you start enjoying the money you
have worked so hard to save. At ESUPERFUND, not only do we
set up your SMSF and pension account for you, we’re here to
provide ongoing support and administrative presence – taking
the hassle out of your annual compliance obligations.
You can visit our website at https://www.esuper-
fund.com.au/pensions/how-pension-in-smsf-works for more
information on pension. If you are ready to set up an SMSF,
apply online today.
Conclusion
23Commencing a Pension in Your SMSF
Stay connected with us:
Sources:
· https://www.esuperfund.com.au/learn/access-super-benefit/aged-55-to-59/not-retired
· https://www.esuperfund.com.au/learn/tax/tax-in-smsf
· https://www.ato.gov.au/Individuals/Super/Super-changes/
Change-to-transition-to-retirement-income-streams/
· https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/
SMSF-technical/Funds--starting-and-stopping-a-pension/
· https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/ SMSF-resources/
SMSF-technical/Pension-standards-for-self-managed-super-funds/
· https://www.moneysmart.gov.au/superannuation-and-retirement/
income-sources-in-retirement/income-from-super/account-based-pensions
· https://www.moneysmart.gov.au/superannuation-and-retirement/
how-super-works/tax-and-super
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* Important Information: When setting up an SMSF, it is important to understand that
additional fees may apply, and should be carefully considered prior to making a
decision to set up an SMSF. This includes the ATO Supervisory Levy, Company Trustee
Setup Fee (where applicable), and Investment Fees.

24. General Advice Warning: The contents of this ebook are of a general nature only
and have not been prepared to take into account any particular investor’s
objectives, financial situation or particular needs. ESUPERFUND does not provide
financial product advice or recommend any financial products: This applies equally
to those financial products which are established for your SMSF when you become
a client of ESUPERFUND. Where this publication refers to a particular financial
product then you should obtain a Product Disclosure Statement (PDS) relating to
that product and consider the PDS before making any decision about whether to
acquire the product.
We also recommend that you should seek professional advice from a financial
adviser before making any decision to purchase any financial product referred to in
this ebook. While the sources for the material are considered reliable, responsibility
is not accepted for any inaccuracies, errors or omissions. When setting up an SMSF
it is important to understand that additional fees may apply that must be carefully
considered prior to making a decision to setup an SMSF including an ATO
Supervisory Levy, Company Trustee Setup Fee (where applicable), and Investment
Fees.
www.esuperfund.com.au