Q&A: Can I withdraw a lump sum after I start a pension?

Just keep in mind that there are some types of income streams out there that don’t allow access to lump sums. Some older style pensions don’t allow access to lump sums. Even some drafting of some – what we refer to as – old allocated pensions have some restrictions. Just check what you have and what your fund specific rules are, but you can certainly access it as a lump sum. Now, it doesn’t necessarily need to be a year after you start a pension. You can access those lump sums whenever you want, so long as you are eligible.

The key, though, or the important issue here is around the timing of the payment. This is mostly relevant for SMSFs. That if you want to take a lump sum from an SMSF, you must have a written request from that member, so from yourself to the SMSF, requesting that lump sum payment to be made. It’s very, very important that that’s there.

So, what I’d suggest is you have a letter or note to yourself saying, “I’m requesting a lump sum of X dollars to be paid from my X account within my fund.” And then I would put a trustee minute or a resolution to accept that and make that payment. It’s really important that you have both of those things in place before the payments made. Otherwise, it will just be treated as a pension payment.

The other thing is to not forget that if you do take a lump sum, because you are allowed in these cases, that lump sum doesn’t count towards your minimum pension required for the year. So, you need to make sure that you do meet that minimum requirement. For instance, if your minimum pension percentage was five, you still need to make sure you pay that five per cent out, not including the lump sum. I see a lot of people get unstuck with that, and they end up failing the minimum pension requirement for the year. So just keep that one in mind.