From 1 July 2025, the ATO has adopted a stricter interpretation of pension rules under Tax Ruling TR 2013/5. If an SMSF member fails to meet the minimum pension drawdown, their pension is now treated as having ceased from the start of the financial year (1 July)—not when the mistake is discovered.

Key Implications:

1. Tax Consequences: Pension accounts revert to accumulation phase from 1 July, and earnings become taxable.

2. Transfer Balance Cap (TBC): A TBC credit applies immediately, and delays in identifying errors can result in part of the super balance being locked out of pension phase.

3. Market Risks: Investment growth during the inactive period may cause the account balance to exceed the TBC, limiting the ability to restore the pension's full value.

4. Estate Planning Impact: Merged balances may disrupt tax-efficient inheritance strategies, especially for blended families.

Recommendations:

1. Proactively monitor pension payments before 30 June each year.

2. Request a Minimum Pension Report from your accountant or adviser.

3. Double-check all drawdowns, especially for new pensions or special income streams.

4. Plan ahead for any unintended tax or estate planning impacts.

Please contact us directly if you need any help with this.