Q&A: What is required when making lump sum withdrawals from an SMSF in pension mode?

If I start a pension, I put a million dollars from my accumulation into a pension account, every payment from that pension account must always be treated as a pension payment. Unless before the payment gets out, I have an agreement with the trustees to treat it as something else. We all know why we’re doing this. We’re trying to reduce our transfer balance account amount so that we can move more money back into pension phase later. If you are therefore trying to treat a payment from your pension account as anything other than a pension, you have to be proactive about it.

You need to put in place the required paperwork before the payment is made. What that would just usually say is, pay me X amount of money from my pension account as a lump sum payment. Then the trustee minutes signing off, it’s that simple. But we do it before the pension, before the payment is made from the fund. Check your trust deed for any requirements. You would need a member-written request, which would set out how much is to be paid as a lump sum and from where it’s coming.

What if, for instance, you had two or three pensions. Well, that request from you to the trustees to treat that payment as a lump sum and not a pension, should reference from which pension that amount’s coming from. Be careful with that. If you’ve got multiple pensions, you need to tell the trustees from which pension you’re requesting that payment to be treated as a lump sum. That’s important. I know I’m probably not stressing enough, but where you have multiple pensions, make sure you reference from which pension it’s coming from.

Also, don’t forget that as it’s a lump sum coming from retirement phase, you need to complete the transfer balance account report. The SMSF will need to lodge the transfer balance account report, the T-bar within the required time frame, which is now 28 days following the end of the relevant quarter. For instance, if you were to take a lump sum today from a pension, the quarter is the December quarter, you would have to lodge your T-bar by 28th January next year for that.

The other thing is make sure that the pension from which you’re requesting the lump sum is a full retirement phase pension. It’s not a transition to a retirement pension. We can’t take lump sums from transition to retirement pensions. Just keep that one in mind.

They are to me the key issues to understand.