How do I add more money to Pension Phase in my SMSF

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Registered: ‎03-12-2015

How do I add more money to Pension Phase in my SMSF

This is a common question I get from people who have added more contributions to super and now want to move these to pension phase or are doing a re-contribution strategy to improve the tax-free percentage of your fund. 


Option 1: Starting a new pension

The first option is to set up a new pension with those new or recycled funds. Yes, you can have as many pension accounts in the fund as you wish and as part of long-term strategies and estate planning we have had clients with 4-6 pension accounts prior to consolidation. We often set up new pensions when dealing with Non-Concessional contributions (personal savings) as they are 100% tax-free and we like to maintain that position and not taint it with a mixed taxable / tax-free balance.


Bear in mind that you can make a contribution in June of a financial year and start a pension immediately without having to take any minimum pension for that financial year. This can aid a trustee in ensuring the funds go in to the fund and immediately in to pension phase.


Option 2: Consolidating Pensions by resetting the current pension 


Warning: Do not reset any pension without considering Centrelink or Commonwealth Seniors Healthcare Card implications.


The other option is to reset your exiting pension. Resetting a pension is simply the process of commuting an existing pension, adding in any additional funds that have been contributed from the Member’s accumulation account balance, then re-commencing the pension with the new, combined balance.


Before doing anything, make sure the Trust Deed allows for resetting of pensions. 


Resetting a pension enables you to consolidate your funds to pension phase without the need to commence extra pensions. This not only moves more of the benefit into pension mode, but reduces the burden for SMSF accountant or administrator in managing additional pension accounts.


As mentioned above Pension Resets are suitable in some circumstances but not others and we deal with them on a case by case basis. There are pros and cons of resetting a pension or commencing a new pension.


  • If a contribution was made during the year would you could start a new pension at the time of the contribution or reset the current pension at the year-end. Using a new pension commencement you may be able to avoid the cost of an actuarial certificate and not need the completion of interim accounts at that date.
  • If one or more contributions were made during the year you may be well advised to reset the pension at the end of the financial year. This would avoid having to do additional sets of financials and avoid having too many new pensions over time but the down side is you would need to pay for an actuarial certificate as you had funds in both pension and accumulation for some period during the year. You will also have to pay some tax on earnings in accumulation mode although these may be offset by franking credits.
  • If your existing pension has a large taxable component and you plan to engage in a re-contribution strategy over a few years then it would be wiser to start a new pension each time with the non-concessional contributions and once finished consolidate the pension accounts. By resetting existing pensions you make it harder to implement this strategy as you end up taking out a higher portion of the  tax free element  each year just to put it back in.

There are rules to follow on all pensions like making sure that the minimum pro-rata pension payment has been made on the existing pension before commuting and resetting.


In summary the decision to start a new pension or reset an existing one will depend on a number of circumstances such as the current taxable / tax-free percentages of the existing pensions, whether the new contributions were one-off or drip fed throughout the year. You will also need to take in to account he estate planning needs of the member’s  and finally the costs and


What is required to reset a Pension in a SMSF?

All you need to do is organise a Reset Pension Kit with your advisor or administrator.


The Reset Pension Kit document package for a SMSF Pension set up includes:


  • Application form – from fund member to fund trustee(s) requesting the current pension be redeemed to Accumulation  and when. Then requesting a new a pension be set up and the details like the chosen start date and where to be paid and when;
  • Minutes of the fund trustee(s) agreeing to move the account back to accumulation phase, consolidate funds and commence a new pension, often agreeing to the new pension from the request date but delaying the issue of the final documents until the annual financials have been prepared;
  • The Pension Payment Agreement containing the rules under which the new pension will be paid;
  • A Product Disclosure Statement summarising the features of the Pension (rules and regulations basically);
  • A cover letter explaining what to do next as far as making the payments.

Hope you found this information useful


Liam Shorte

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