SMSF services

Defined benefit (DB) pensions

Defined benefit pensions are a type of a legacy pension where a member exchanged a purchase price for a series of regular payments from their SMSF. The main features that distinguish defined benefit pensions from account based pensions are:

  • Pension payments pre-defined and must be paid every year
  • The pension payments are not linked to investment performance
  • Other than the promised pension payments, the pensioner has no rights to the assets supporting the defined benefit pension
  • Not all assets supporting the defined benefit pension earn tax free income

A member has not been able to start a new defined benefit pension from their SMSF since 1 January 2006. Existing defined benefit pensions can be categorised as follows:

  • Complying defined benefit pensions
    -  Complying lifetime
    -  Complying life-expectancy (fixed term)
  • Commutable defined benefit pensions (Flexi pensions)
    -  Commutable lifetime
    -  Commutable life-expectancy (fixed term)

Assets supporting a complying defined benefit pension may be exempt from the Centrelink Assets Test for the purposes of Social Security:

  • 100% Assets Test exempt if started on or before 19 September 2004
  • 50% Assets Test exempt if started 20 September 2004 to 31 December 2005

Defined benefit pensions are subjected to an annual solvency test performed by an actuary. If you need an actuarial certificate for a SMSF with a defined benefit pension click here.

Find out more:

Actuarial certificates for DB pensions

Commuting complying DB pensions

Impact of transfer balance cap on DBs

Estate Planning (coming soon)