What happens if I don’t take the minimum pension?

The Australian Tax Office (ATO) in January 2013 released guidance on the consequences of trustees not paying minimum amounts from account based pensions, including the loss of tax exempt status. It has issued two documents on starting and stopping a superannuation income stream (pensions) for self-managed superannuation funds. Tax Free

The guidance was another positive step from  the ATO.

The two new documents outline the rules which will determine whether an income stream is a pension in accordance with the Superannuation Industry (Supervision) Act (SIS Act) and focus on what happens if the minimum amount has not been paid to the pension member during a specific income year.

If a trustee fails to meet the minimum pension payment requirements under the SIS regulations, the superannuation income stream will be taken to have ceased at the start of that income year for tax purposes. Accordingly, any payments made during that year will be superannuation lump sums for both income tax and SIS Regulations purposes. The fund would not be entitled to treat the income or capital gains as ECPI (exempt current pension income) for the year. In the following year if the fund satisfies the minimum pension payment amount, a new pension is taken to have commenced requiring a resetting of the values and pension documents.

The good news is that the Tax Commissioner, may exercise his general power of administration (GPA) to allow the superannuation fund to continue its use of the ECPI provisions, despite not having satisfied the minimum pension requirements.  In these circumstances, all payments will be considered income stream payments and the superannuation fund will avoid having to re-start the pension and apply the proportioning rule again.

The documents outline that the Tax Commissioner is unlikely to excise this power unless all of the following conditions are satisfied:

•    The minimum payment was not paid due to an honest mistake resulting in a small underpayment (for
example where the amount does not exceed 1/12th of the minimum annual payment) or due to
matters outside the control of the trustee.
•    Access to the ECPI provision would have continued but for the trustee failing to pay the minimum
payment amount.
•    The trustee makes a catch up payment as soon as practicable (for example within 28 days of
becoming aware of the underpayment).
•    The catch up payment, if taken in the correct income year, would have satisfied the minimum
pension requirement.
•    The trustee treats the catch-up payment, for all other purposes, as if it was made in the correct
income year.

The Commissioner will allow all trustees to self-assess the GPA concession if:

•    not meeting the minimum payment rules was an honest mistake or outside the trustee’s control
•    the underpayment is small (as defined above)
•    all of the conditions listed above have been met.

For trustees of SMSFs, the ability to self-assess is only available where they have not previously been granted such a concession. So another one-off concession for genuine mistakes.

Trustees may apply in writing to the relevant regulator if they do not meet the requirements for self-assessment, but believe that the circumstances warrant exercise of the Commissioner’s discretion.

The document contains a number of useful examples, illustrating situations where the ATO considers the use of the discretion (via self-assessment or otherwise) would be justified. Click here  to access the documents on the ATO site.

As always please contact me if you want to look at your own particular situation as we specialise in cleaning up the mess other’s make. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Leave a comment


  1. Great explanation, (when the ATO info can be a litte wordy and unclear at times). well done!


  2. Liam, I’ve had people ask me questions like this about pensions. I know where I can send them now for the comprehensive answer.


  1. The Ultimate SMSF End of Financial Year Checklist 2021 | The SMSF Coach
  2. The Ultimate SMSF End of Financial Year Checklist 2020 | The SMSF Coach
  3. Last minute SMSF, Superannuation and Tax strategies before 30 June | The SMSF Coach
  4. The Ultimate SMSF End of Financial Year Checklist 2016 | The SMSF Coach
  5. SMSF End of Financial Year Checklist 2015 | The SMSF Coach
  6. SMSF End of Financial Year Checklist 2014 | The SMSF Coach
  7. SMSF End of Financial Year Checklist 2013 | The SMSF Coach

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