Key Pension issues for SMSFs


The ATO is now targeting SMSFs in pension phase as part of its SMSF compliance program.

It is critical for trustees to assess their current circumstances for any major risks relating to pensions for SMSFs.

The ATO has expressed concerns about SMSFs in or transitioning to pension phase that hold illiquid assets such as real property. Many funds move into pension phase but don't adjust their investment strategy to take into account the ongoing pension payment. This is becoming a major issue, especially when real property is the major asset of the fund.


In some cases, the ATO has found that the net rental income return on a fund's real property investment is insufficient to meet pension requirements. Not adjusting investment strategies as a pension drawdown increases can cause major issues. Generating sufficient rental income can also become particularly problematic in times of economic downturn.            


Apart from property, there is also a more surprising issue that persists with SMSF pensions; lodging applications of the wrong pension drawdown percentage. Many people may make this mistake because they have turned a different age or they simply apply the same rate as the year before.            

Nevertheless, getting a pension wrong can result in serious financial consequences, and with the tax office honing in on SMSFs in pension phase, trustees need to be aware of the significant tax consequences of even simple misunderstandings.  
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